Over recent years the FCA’s Retail Distribution Review (RDR) and Financial Advice Market Review (FAMR) have been focused on delivering an advice market that is client centric, transparent and professional and demonstrably delivering value to the end investor.  The FCA has now turned its attention to the Asset Management industry.  Their review which commenced in 2015 and included a round of industry consultation was concluded and published last week.  It included a series of initiatives that aim to:

• Improve independent governance of asset managers and impose a greater level of investor protection
• Help investors better understand the objective and the total cost of the product
• Create a more consistent and appropriate use of benchmarks and return targets
• Enable investors to easily compare products and identify the best and most suitable product
• Increase the focus investors place on the total cost of the product and the value chain
• Promote competition process pressures and create a greater correlation between price and performance
• Ease the restrictions placed on asset managers to switch clients to cheaper share classes

Each of these areas are intended to create a more efficient, accountable and competitive market place that provides greater investor protection and a clearer more tangible demonstration of value for money.  In turn, and potentially an ulterior motive, the FCA is looking at this review and the resulting reforms as a means of ensuring that the UK remains an attractive place for investors to do business, especially in a post Brexit era.

Likely impacts

Investors: if successful the reforms will provide better clarity of the investment product’s objectives and performance, with the intended competition pressure reducing costs and allowing for a better assessment of value for money.

Advisers: with greater investor accountability placed on product providers, advisers are likely to see enhanced support from the asset management industry in enabling them to meet their client fiduciary obligations.  On the downside, if the FCA pushes ahead with their ban on pre-RDR commission payments, some adviser firms may see an impact on their P&L.

Asset Managers: augmented governance and disclosures will cause work for asset managers in the short term but with good project management and resourcing this shouldn’t cause problems.  The bigger challenge faced by asset managers is the ability to demonstrate good value for money; FCA suggests that means risk adjusted returns, but is that correct?  The FCA rightly stepped out of the passive/active debate but weren’t shy about highlighting its concerns of absolute return products.

SEI: we welcome the reforms.  We believe in the same principles that the FCA is promoting and consider our Goals-Based Investing solution to be aligned with how the industry is being directed.

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