On 7 April 2016, the FCA published a report setting out the findings of a thematic review it has carried out into whether, and how, asset managers are meeting investors’ expectations (TR16/3).
The FCA announced the thematic review in its Business Plan for 2015/16 – The aim was determine whether UK authorised investment funds and segregated mandates were operated in line with investors’ expectations as set by marketing and disclosure materials, and investment mandates. This was assessed against FCA rules and did not focus on fund performance. The FCA also looked at how firms monitored the appropriate distribution of their funds. The review covered 19 UK fund management firms responsible for 23 UK authorised funds and four segregated mandates.
Overall, the FCA found that fund management firms are taking the right steps to meet investors’ expectations and comply with their responsibilities towards investors. Most of the firms covered by the review invested in line with their stated strategy and investors were not exposed to any undisclosed investment risks. However, the FCA did identify some examples of unclear product descriptions and inadequate governance or oversight.
The key messages for firms relate to the following areas:
- Clarity of product descriptions. Firms must ensure that product descriptions are clear and correct because investors and financial advisers decide whether to invest in authorised investment funds based on this information. This includes disclosing if funds have a strategy based on an index and if the investment manager’s flexibility to invest differently from that index is limited.
- Providing adequate oversight and governance. Firms must provide effective governance and oversight throughout the whole of a fund’s life, including funds that are no longer actively marketed.
- Ensuring appropriate distribution. Firms need to identify trends that may indicate inappropriate sales by monitoring the distribution channels they select as part of their responsibilities as product providers.
The FCA expects all fund management firms to consider these key messages and the findings set out in section 3 of the report, and review their arrangements accordingly. Distributors should also consider their responsibilities in the light of the FCA’s findings and ensure appropriate information is provided to investors. Senior management and those involved in fund governance should consider whether any of the concerns raised by the FCA are reflected within their own firm’s operations and take any action necessary to minimise the risk of poor outcomes to customers.
A related FCA press release states that the FCA is writing to all the firms covered by the review to provide individual feedback.
Firms that did not effectively manage risks that could lead to poor customer outcomes will be required to make improvements to their practices. The FCA is already requiring that the most significant issues be addressed. It will follow up on this work through its routine supervision of firms.
The FCA is currently carrying out an asset management market study, to understand whether competition is working effectively to enable investors to get value for money when purchasing asset management services – It expects to publish an interim report in summer 2016.
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