FCA backs all-in fund fee in scathing final report

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The Financial Conduct Authority (FCA) has targeted the absolute return sector in its asset management study, suggesting there is a "relatively high likelihood" an absolute return fund would provide negative performance.

To read the FCA report in full, please see here. Referring to this, Ian said: 'In April this year we launched IG Smart Portfolios, a range of risk-managed investment portfolios, with the aim of putting true transparency at the heart of direct customer choice. The association for front office investment professionals continued that it makes sense to work with the fee disclosure requirements in existing regulations such as MiFID II and PRIIPs which give investors more transparency of likely total costs. To my mind, some of that lobbying has looked like parts of the industry are still in denial about what has really been going on; an example might be the Investment Association's response to the FCA's Interim Report, 146 pages that in parts make a fearless attempt to argue that the FCA's analysis, research and findings are wrong.

As a result, the regulator said it was proposing a series of remedies including supporting the disclosure of a single, "all-in" fee to investors. The FCA also found that investors are not always clear on the the objectives of a fund and performance is not always reported against an appropriate benchmark.

Sean Tuffy, head of regulatory intelligence at Brown Brothers Harriman in Dublin, continued that the FCA's all-in-fee proposal goes far beyond what the European Union requires and will be interesting to see how this plays in context of the United Kingdom leaving the trading bloc.

It is intended the costs associated with the new rules on independent directors are absorbed by fund management groups and not passed to investors, the FCA notes. As an asset manager owned by a mutual company this is already very much part of our ethos.

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In its Wednesday statement, the FCA said it was inclined to reject those so-called "undertakings in lieu" because the proposals did not come from the whole market, and instead said it would consult further and make a decision in September.

"We welcome that the FCA is consulting widely over their concerns regarding the competitive nature of the market and we look forward to their further update in the not too distant future". The FCA has delivered a report which spares them the harshest potential remedies flagged in their interim report last November.

The introduction of a single transparent fee may initially benefit passive funds, whose TERs are undoubtedly lower than active fund managers. However, he continued that there are two notable shifts in the tone of the final report in its final form.

The FCA will also recommend to the Department for Work and Pensions that pension schemes should be allowed to pool their investments in order to seek out better returns. Using a third party to help choose, appoint and monitor a fiduciary manager or other "in-house" funds should become the norm and not the exception and we expect this will be an area of growth for the industry, and for Xafinity. They will also have to inform clients of fund devaluations of more than 10 percent and produce annual reports detailing all costs purchases and sales of funds.

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