Value assessments by some fund managers still need to be improved, despite overall progress, the Financial Conduct Authority has said.
The regulator has been working with the industry in the wake of its 2017 Asset Management Market Study which found evidence of weak demand-side pressure on fund prices, causing uncompetitive outcomes for investors.
A new report published today (August 10) found many firms do now consider assessment of value in their processes.
However, there are still firms which need to take action.
This is made all the more pressing after the introduction of the consumer duty, though the new regulations did not apply at the time of the FCA review.
Going forward, the FCA said firms should make sure that their practice, including around delivering fair value, for other products and services is consistent with the various expectations arising from the duty.
The FCA stated: "Firms’ AoVs [assessment of value] are crucial to delivering fair value in the sector. Good AoV processes enable firms to make well informed assessments of value and helps ensure consumers receive fair value from their investments in authorised funds."
For example the FCA criticised some firms for not providing sufficient challenge, with some accepting information provided at face value "without probing further".
In addition, many firms justified their fees by stating they were in line with competitors. Whereas others said they would only consider cutting a fund’s fees if they found they were out of line with competitor funds’ fees.
The FCA visited 14 firms over four months as part of the review.
Examples of good practice highlighted by the FCA included moving investors to clean share classes with no trail commission.
Camille Blackburn, director of wholesale buy-side at the FCA, said: "Authorised fund manager boards and senior managers are responsible for ensuring value assessments are carried out properly and any issues found are resolved quickly.
"It is vital that firms make sure they are not solely focused on a fund’s profitability over value for money for investors. The consumer duty, which is now in place, further supports our expectations in this area."
The FCA said compared to its last review in 2021 many firms have a better understanding of the rules and have “significantly improved” their processes.
tara.o'connor@ft.com
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