The low interest rate environment has seen costs and charges emerge as a key regulatory theme for the global retail and institutional investment industry, KPMG warns in a new report.
Regulators are taking an increasingly “granular” approach to disclosure, while the calculation of fees and charges is becoming an international focus, the Evolving investment management regulation report says.
The report points to International Organization of Securities Commissions reporting on the issue of fees for the first time since 2004, arguing that cost management was key as well as ensuring that conflicts of interest do not misalign the interests of the investor and the fund operator.
Some regulators were setting caps on charges, while others were encouraging simpler products with reduced costs, the report says.
Closet index tracking was listed as a particular concern in Europe with the potential for “significant reputational repercussions” for the fund industry.
Legacy issues left investment firms at risk of falling behind on product innovation and choice, including adopting technology to speed processes, the report warns.
At the same time, the report warns investment products are “mutating” and are too complex for retail investors, who are often unable to understand the risk-reward profile of products.
KPMG director Julie Patterson says: “Investment services are in great demand but finding a way to capitalise on that, whilst navigating compounding regulatory, security and economic pressures, along with rapidly evolving consumer demands, means the next decade will be a transformative one.
“If the investment management sector is to gain from the opportunities at hand, it needs to make significant investments in technology and reform the way it builds and distributes products.
“Increased information sharing is deepening regulators’ knowledge and enabling authorities to fine tune and intensify product investigations and enforcement.”
KPMG partner of global head of investment management Tom Brown says: “Over the past 12 months we have seen an up-tick in regulatory measures across the globe that are demonstrably positive.
“This is especially evident in Asia, which will clearly be one of the main growth drivers. As markets open up and the geo-political environment remains volatile, the investment industry’s role as a vanguard for channelling growth is being put to the test.”