Vanguard has said warnings about high charges should be carried by platforms, not just by funds.
In response to the FCA’s asset management market study in November Vanguard asked the FCA to include a “health warning” in funds’ documents to help investors understand the impact fees have on returns.
It said this would be “a clear sign of intent” that the industry is willing to put the interests of investors ahead of its own.
Vanguard is now lobbying the FCA to apply the warnings as part of its platform market study.
The study will look into whether platforms aid good investor decisions and whether they offer value for money. Firms were given until 8 September to submit their feedback on the terms of reference.
The regulator plans to publish an interim report by summer 2018.
Vanguard head of policy Richard Withers says: “We are engaging with the FCA and will engage more comprehensively on the platform study.
“There is an opportunity to increase the profile of costs. We referred the FCA to our costs warning that we suggested for the asset management market study. That said, there should be a greater priority on service documentation for platforms about the high costs that prove detrimental to your long-term returns much as there’s a warning that past performance is not indicative of future performance.”
Vanguard has responded to the FCA both in an asset manager and platform capacity, given it has recently launched in the UK direct market.
In particular, Withers says it is “incredibly important” the FCA reviews how platform providers compete and the critical part costs play.
Withers says: “There should be greater transparency and simplicity when it comes to charging structures. That is not criticism of the platform industry but it is about the offering of investments generally.
“We don’t think there is enough focus on cost, which is something investors can’t control, but they don’t necessarily have an appreciation of the impact of that.”
Withers argues platforms struggle to make investor communication on costs clear and straightforward, though this should be a “simple process”.
Third-party providers which offer “key maps of red and green” on which platform is cheaper are not enough to compare cost and charges from providers, says Withers.
He says: “All the research we’ve done in advance of the launch of our own platform was that UK investors don’t really understand fees and charges. They often base their decision on past performance and they don’t find the documents that providers offer them meaningful, comparable or useful.”
Vanguard has not yet responded to the consultation on the remedies suggested by the FCA in its attempt to reform the asset management sector. However, Withers welcomes the FCA’s proposals to introduce more independent oversight at board level to protect investors.
Currently the directors at the Vanguard board are all part of the Vanguard Group.
Withers says: “Under the current proposal we don’t have a sufficient independence on the board. But if the FCA want true independence, that is something that absolutely Vanguard will do. If it is appropriate to have completely independent directors across the business we’ll be very supportive of that.”