AIC boss: FCA ‘all-in fee’ will harm investment companies

The Association of Investment companies has warned the “all-in fee” proposed by the FCA in its interim study on the fund management sector has the potential to harm investment companies.

Speaking to Fund Strategy, AIC chief executive Ian Sayers says placing all fund costs into a single fee with all charges “squeezed together” would cause difficulties for firms that negotiate costs through many different providers.

Sayers says: “For us it will be very difficult because we don’t buy the service from one person. There is the assumption all the services are coming through one party. What do you do when you have multi-managers managing different parts of your portfolio? There is not going to be a single fee; the board is going to renegotiate different fees for those different managers.”

Sayers also hints that, because an all-in fee could give the impression fund manager fees were now higher, it would lead to some trying to cut costs in areas like audit and administration.

He says: “We all want to see fees come down but there are certain things you don’t necessarily want to constantly squeeze on price. The message we want to get across to the FCA is there are different ways of doing this.  I worry everything is trying to push everybody into a single track, single price, single model portfolio and I am not sure you’re going to get the best results for consumers always in those situations.”

Sayers says although the FCA has focused more on open-ended funds in its review, it has “hinted” it looked into closed-ended funds too.

He says: “For the discussion around performance, In terms of how many people outperform their benchmark, I think we’ll have a positive story to tell and I do think that close-ended structures, not having all this money coming in and leaving, creating the turn in the portfolio, over the long term, it gives you a better chance of outperforming.

“Also by having an independent board in place [in investment companies] means you can legitimately take a different regulatory approach.”

The AIC plans to argue this point in its response to the FCA interim study.

Meanwhile, it is understood Hargreaves Lansdown will be looking to “educate the FCA” and work with the regulator about how past performance metrics can be used as a meaningful measure of fund managers.

A senior source within HL told Fund Strategy: “Past performance is important if you look at it the right way. We know from the asset management review that consumers are really looking at it.

“A lot of the time they don’t understand the drivers and subtlety of investment decisions and they do need help. Whether that be from guidance or advisers charging a fee, if the FCA gets that right its important as part of the competition solution.”