The Financial Conduct Authority is preparing to launch an investigation into the way in which investment managers operate. The aim is to determine whether or not these companies are providing their customers with a service that is good value for money.
The Financial Conduct Authority, who is the financial regulator for the United Kingdom, will look into both individuals who provide investment advice and the asset managers themselves.
The main focus of the inquiry will be to look into the way in which potential customers choose an investment manager, it will attempt to clarify whether or not there is sufficient competition between them.
The three main areas of the review will be: the value delivered by asset managers, whether or not they have the proper motivation and ability to keep costs in check and whether or not investment consultants have a positive effect on the level of competition of institutional asset management.
There will also be scrutiny placed upon the fees that are charged by these managers, and whether or not the charges actually reflect well upon the performance of the individuals.
There have been complaints lodged by several consumer groups that the level of fees can vary greatly, and that there is also not a huge amount of transparency when it comes to what these fees are actually for.
The Financial Conduct Authority’s director of strategy and competition, Christopher Woolard, said:
“Given the significant role they play in the economy, it is essential that competition works effectively for these services. The UK is a world leader in asset management”.
“Our market study aims to ensure that both retail and institutional investors can get value for money when purchasing these services – which we expect to further strengthen the UK’s position as a major centre for asset management”.
The investment industry has welcomed the announcement.
The interim chief executive of the Investment Association, Guy Sears, said:
“We agree it is essential the whole investment chain functions effectively for its clients”.
“We welcome the Financial Conduct Authority’s decision, alongside its core focus on investment managers, to also consider the role of distributors and investment consultants”.
The final report is expected by 2017, and the Financial Conduct Authority has said that its provisional findings will be published in 2016.
If the inquiry finds too little competition in the market, it is believed that the Financial Conduct Authority may decide to intervene “through rule-making,introducing firm specific remedies or enforcement action, publishing general guidance or proposing enhanced industry self-regulation”.
The regulator commented saying:
“Given the size of the market and the long-term nature of investments, even a small improvement in the effectiveness of competition could be of substantial benefit for investors”.
The asset management market in the United Kingdom, with over £6 trillion invested, is Europe’s largest. Roughly £2.1 trillion of this is in pension fund investments, retail investment products represent £1.2 trillion and public sector investment and charity are worth about £400bn.