Brexit, FCA and passives debate to dominate industry in 2017 – EY

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Brexit, the FCA market study and the continuation of the active versus passive debate will be areas of focus for wealth and asset managers in 2017, EY says in its 2017 outlook for the industry.

Firms will continue or start their Brexit programmes in earnest at the start of the year – well before the triggering of Article 50, says UK head of wealth and asset management Gill Lofts, who points out the question of passporting still hangs in the air.

“Whilst some managers will be looking tactically to increase their presence in Dublin or Luxembourg, others are taking a longer term strategic view and looking at other viable EU jurisdictions.

“These alternatives may prove strategically more beneficial in the medium to longer term.”

However, Lofts is not predicting a mass exodus and says London will remain global hub for asset management.”

The direction of travel following the FCA market study is positive, according to Simon Turner, partner in EY’s wealth and management practice, as it focuses on fees transparency and closet trackers.

“What is critical now is that the regulator’s focus is firmly on client outcomes rather than simply costs.

“If higher fees are levied for genuine outperformance or lack of correlation to a benchmark then they can be justified; if higher fees fail to deliver good results then, in most cases, “the market will decide” and those funds would come under pressure due to outflows.”

But when it comes to the active versus passive debate, Turner reckons macro forces could be just as important.

“The FTSE and the S&P have both risen sharply during 2016, and if 2017 sees poor economic data from the UK and US, we are likely to hear less fanfare around funds tracking a falling index, especially if stockpickers and hedge funds begin to outperform their passive counterparts.

“To a degree, the level of support for a lower-fee environment may depend on macro-economic and market forces as much as industry and regulatory arguments.”