FCA report underestimates fund group inefficiencies, experts warn

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The FCA has underestimated a number of inefficiencies in the asset management industry in its interim report on competition between fund groups, experts argue.

The FCA analysis shows profits at fund management firms are high when compared to other sectors.

The Financial Inclusion Centre director Mick McAteer says from a consumer perspective the FCA underestimates the impact poor fund group practice has on the end cost to the consumer.

He says: “In the active management sector there is [often] overtrading and payment of high bonuses, so they add unnecessary costs into the system, inflating operating costs, which then reduce the operating profits. So the inefficiency is even greater from a consumer perspective.”

McAteer also says the FCA “clearly” found it difficult to establish exactly how profitable funds and firms were, raising questions over whether funds’ accounting systems are set up to work out the real costs for investors.

Fairer Finance managing director James Daley says the main inefficiency the FCA has overlooked is performance fees, which have not been considered a “massive” problem by the FCA so far, especially in the absolute return sector.

He says: “For an interim report it raises a lot of key issues but the question is will the final report follow through the remedies it is suggesting?

“These market studies are quite big occasions as once the FCA finishes this, then they’ll put it to bed for a few years.

“If they leave some of the problems on the sidelines now then they’ll miss that opportunity.”