Fund managers face ‘monumental task’ monitoring distribution


Fund managers face a “monumental task” monitoring distribution channels after the FCA raised concerns advised-only products are being sold through non-advised platforms.

The regulator revealed last week its thematic review of asset managers had uncovered examples of poor governance and warned firms need to better monitor distribution of funds.

In particular, it found two funds were available on execution-only platforms when the fund management company wanted them to be available only with advice.

Gbi2 managing director Graham Bentley says fund managers must take responsibility for communicating distribution requirements to platforms.

He says: “Asset managers blame platforms for using a fund that says ‘for professional investors’ use only’. But it is the fund manager’s responsibility to make sure their distributor has the right material.

“The volume of marketing material distributed makes it very difficult for a lot of departments to keep up to date. It is a monumental task to manage all that.”

Pinsent Masons partner Elizabeth Budd says mistakes like this are more likely when a fund has been in existence for a long period of time.

“Many fund prospectuses are a little too ‘cookie cutter’”

She says: “It may be that the original intention for distribution has been lost sight of. Revisiting existing products to ensure correct ongoing distribution is also a theme seen clearly in Mifid II provisions on product governance.

“Many fund prospectuses are a little too ‘cookie cutter’ and perhaps are not tailored tightly enough to the specific fund and its investment policy.”

The review also warns a number of asset managers have failed to disclose closet tracker funds, while others did not have clear descriptions of funds.

It says asset managers need to ensure product descriptions are easy to understand, and also consistent between marketing documents and fund disclosure documents.

Of the 23 funds and four segregated mandates from 19 asset managers the FCA examined, seven KIIDs did not have “clear descriptions” of how they were managed, while five funds used a benchmark-related approach that was not disclosed.

Other examples of poor behaviour included firms failing to disclose a constrained investment strategy and one company using complicated jargon in its product description.