The UK financial regulator has finalised new rules for how fund managers describe investment objectives, use benchmarks and calculate performance fees.
In a set of ‘remedies’ published last week, the UK Financial Conduct Authority (FCA) requires managers to standardise and simplify fund performance disclosure.
Among the new regulations, UK managers will be required levy a performance fee only “after the deduction of all other fees” while disclosing if, and how, returns are measured against benchmarks.
“The use of benchmarks is not mandatory and we do not expect fund managers to refer to a benchmark if it is not relevant to the way a fund is run,” the FCA guide says. “Our rules do not require or encourage fund managers to use benchmarks, but will require that fund managers explain why they have chosen a particular benchmark.”
Under the Financial Markets Conduct Act (FMC), NZ fund managers must compare products against approved benchmarks – although the rule was softened in an exemption introduced last year.
Christopher Woolard, FCA head of strategy and competition, said the new UK rules were designed to empower consumers caught on the wrong side of the investment information asymmetry equation.
‘We’re working to make competition work better in the asset management market and protect those least able to actively engage with their investments,” Woolward said in a release.
The latest FCA micro-management rules came after an extensive review of the UK fund industry – dating back to 2015 – that have already led to significant regulatory changes.
And there is more to come including the Cost Transparency Initiative, formed last November to “standardise costs and charges information for institutional investors”.
Half-way through December 2018, the Competition and Markets Authority (CMA) – the UK equivalent of the NZ Commerce Commission – also outlined tough new rules on investment consultants.
The CMA recommendations require pension fund trustees who plan to outsource investment decisions to consultants to tender the job to at least three providers. Furthermore, pension funds already using a consultant to manage investments must run a tender within five years, if they haven’t previously done so.
Consultants, or “fiduciary management firms” (consultancy firms that also offer investment products), will also be required to supply potential clients with “clear” standardised fee and performance information under the CMA proposals. Finally, investment consultants will be subject to more regulatory scrutiny if the CMA reforms are adopted.
John Wotton, chair of the CMA investment consultant investigation (which arose out of the FCA asset management review), said in a statement last December:
“This is an extremely important sector that influences how well millions of people’s pension savings are invested, yet we’ve found that many pension trustees may not be getting the best value for money for their members.
“Some lack the information they need to compare providers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.”
The CMA proposals should be out for consultation early this year before coming into force in 2020.