FCA's Bailey: Fund fee caps would not effectively drive competition
Proposes all-in fee on funds
Andrew Bailey, chief executive of the Financial Conduct Authority, said imposing a fee cap on investment funds would be a measure of 'last resort', as it is not an effective way to drive competition in the market.
During a press conference on the FCA's asset management market study released today, Bailey (pictured) highlighted the key issues identified by the regulator as it investigated the industry's ability to effectively control costs incurred on behalf of investors.
In the interim report of its Asset Management Market Study published today, the regulator found "weak price competition" in a number of areas of asset management and has proposed an all-in fee on funds.
Previously, it had been rumoured the FCA was considering a cap on fund managers' charges, but the regulator has steered away from imposing this measure.
Bailey said the key reason for this was that a cap on fees would not drive effective competition and would be a "last resort" measure and not an effect response to the report's findings.
"If you want to stimulate competition, a price cap is not the best idea," he said. "It is a measure of last resort and is not encouraging competition in the market."
Director of competition Mary Starks added: "If you can get price competition going effectively in the market, it should drive prices down.
"We have some concerns, but it is not a picture of doom and gloom. We see discipline in the passive management space, and would like to see this discipline transferred to active funds."
Passive versus active
Meanwhile, Christopher Woolard, director of strategy and competition, highlighted that the study had found some £109bn sitting in "partially active" funds, that charge higher fees than passives but deliver returns similar to the benchmark.
He highlighted these funds should not be equated to 'closet trackers', which have already previously been investigated by the regulator, because the list encompasses all active funds that charge fees at the higher end while not delivering strong outperformance, making them the "least active funds on the active spectrum".
He said: "We found that large groups of active funds are taking only moderate positions relative to benchmarks. Some £109bn is sitting in expensive active funds, which closely mirror passives.
"If you have specific objectives, sometimes only active management can help you, but there needs to be transparency so investors can make the right choices."
Starks said she expects the funds in this space to "engage and ask questions about how they can improve", but the regulator was clear that these funds are not in breach of their investment objectives.
The asset management market study was first announced in the FCA 2015/16 business plan following feedback it received as part of its wholesale sector competition review, which raised a number of questions about competition along the asset management value chain.
Originally, the interim report was due to be published in summer 2016, but this was pushed back to Q4 2016 after the Brexit vote. The final report is due to be published in early 2017.
The review aimed to understand whether competitions is working effectively to enable retail investors to get value for money when purchasing asset management services.
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