The FCA chief executive Andrew Bailey expects costs of fund management to keep going down as a direct consequence of the regulator’s study into competition among asset managers.
Speaking at a press conference following today’s publication of the final report into the investment industry, Bailey said fund fees will continue their downward trajectory if competition in the sector continues to “prosper and develop”.
He said: “We are already seeing some trends in the industry [of fees coming down]. It does seems to be the case that in a very recent period we maybe see some change in the trend but in the longer period it is really imperceptible, but it may suggest that [the press] already indicates that there are some changes going on already.
“I would expect and hope that the measures we are going to take will create the environment in which we will see that competition prospering and developing. Yes, [lower fees] is one of the things we expect to see from [more] competition [in the investment industry].”
In its final report, which has confirmed the far-reaching proposals outlined in its interim report, the FCA restated the remarks on how active fees haven’t changed much over the past 10 years, despite the Investment Association questioning the validity of this time frame.
Mary Starks, chief economist and director of competition, said active fees have only dipped “very slightly” looking at a three-year period, as the IA suggested, but not nearly as much as passive fees.
She said: “We have had lengthy discussions with the IA. They would rather we looked at a three-year period, which shows a tail-off in active fees, but over the longer run of 10 years this is imperceptible.”
More than Mifid II and Priips scope
The FCA report has confirmed the regulator will go ahead with its heavily criticised all-in fee proposal where fund managers will need to include transaction costs. Works will continue on the proposals as it aligns with reforms under the upcoming Mifid II and Priips regulations.
But FCA executive director of strategy and competition Christopher Woolard said the FCA is going to extend the rules of Mifid II to the whole fund management industry and not only the intermediaries where the European regulation actually applies.
He said: “In broad terms, over the time we have conducted our study we had more clarity around Mifid II and Priips. They have transparency built into [them]. The core of the Mifid II proposal around how there is an expectation of fixed cost and estimate of transaction cost is a good one and matches really much on where the thrust of our findings was going in the interim study.
“What we are doing here is to build on that. That particular Mifid II only applies to when you are going through an intermediary. We believe that should work more broadly across the asset management sector in terms of disclosure it is giving.”
On how fund managers would report on transaction costs when passing those to consumers, Woolard says the all-in fee proposal will make sure these will be made clear.
Woolard said: “If the fund manager has underestimated the transaction costs in a sense that it creates a trade war in order to achieve the objectives of the fund, there is a chance that will end up with the consumer but it will be clear to investors at the end of the year [what that cost will be] and at that point we expect the fund manager to explain what these costs are to the customer.
“There is a question on what if a fund manager deliberately chose to underestimate costs in order to drive their competitive position…We expect disclosure to be fair and not misleading.”