How the regulator could intervene
For asset managers, these scenarios range from best to worst case, and could be implemented on a sector-wide or company-specific level. Were the FCA to find certain managers had too much of a stranglehold on an area of the market, the steps could be drastic.
The FCA will release its interim report next summer, and its final report in early 2017.
Focus on value (mostly fees)
Fee pressure from regulators, especially in the world of retail investment, is far from over. Investment platforms and retail asset managers can expect further scrutiny on how they disclose fees (see extract below). A couple more points here:
■ The regulator will consider the problem of 'closet trackers', that is, funds which charge active management fees but in fact track very closely to an index.
■ Exit and entry charges will again be under the spotlight. The FCA will consider how far retail investors switch funds, and the barriers to doing so.
■ The FCA will consider retail fees against those paid by institutions. The latter are typically much lower to reflect the size of the ticket.
There are conflicts in your value chain, Sir
There are two main areas here. First, where an asset management company also operates a platform, the FCA will explore whether this presents conflicts, or a barrier to newer entrants (see below). It will also investigate how a company promotes its own funds relative to those of its competitors.
Life insurance companies do not escape the regulator's gaze either. The potential for conflicts in offering life insurance and savings products, while having an in-house fund management operation, will be considered.
Investment consultants, beware
In the curious world of institutional investment, consultants are the gate-keepers, having a huge impact on the funds that our pension monies are invested in.
But the traditional investor-consultant-manager relationship has changed as consultants have started offering multi-manager funds to clients, such as fidcuiary management. Managers have also moved more into consultancy. The FCA clearly wants to tackle the knotty issue of conflicts for consultants.
Insitutional players: too big?
An area that the regulator has flagged as heavily concentrated was the liability-driven investment market. These strategies have become popular since the financial crisis as they allow underfunded pension schemes to hedge the movement of their liabilities through a combination of gilts, interest rate and inflation swaps.
It is worth nothing the companies that dodged a bullet here - IFA's, wealth managers, and execution-only stockbrokers all missed the cut. But those brokers that distribute funds and other investment products are all within scope.
Perhaps unsurprising, then, that shares in Hargreaves Lansdown (HL.) are down a little today. The company would have been hoping to keep out of the fray.
