One thing that FCA is good at is trailing its views. So it is that the Asset Management Market Study Final Report contains no real surprises. But lack of surprise does not mean lack of impact. These measures will certainly have that, especially on the pockets of fund managers. And not so much as a pause for breath before going into rule-making mode. CP 17/18 (CP17/18: Consultation on implementing asset management market study remedies and changes to our Handbook | FCA) is the start of the implementation process.

What we have here are measures for enhanced fund governance, value for money assessments, reviews of expensive share classes and box management intervention. And there is much more promised, especially ‘single all-in fees’ and other transparency requirements, due ‘later in the year’.

As we know, all of this is driven by FCA’s conclusion that competition is not effective in the investment funds market. We do not disagree with that view, but it is not news and there are no silver bullets to remove the inability of investors to discriminate between funds that are good for them and funds that are not. What is more troubling is FCA’s dislike of profitability.

It is fair to assume that the head-hunters will not object, not strongly anyway, to the proposal for independent directors. If FCA is right and the industry now needs 480 additional directors at a cost of £27m each year, that should keep them busy for a while. Flexible as the regulator might be about the background of IDs, if these directors are to provide value for money, they will need to have a good understanding of the structure of the funds they are selling to the world. Some would say that without that knowledge they would be exposing themselves to unacceptable risk. Remuneration can reward the expertise or address the risk; firms will have that choice to make.

And where the IDs must provide value for money is in considering whether the AFM is providing the same to unitholders. That judgement must be informed by a real understanding of what is and is not important for investors – not always the same as what is and is not important to investors. What proportion of unitholders’ complaints cited split infinitives in the managers’ report? To properly assess is to clearly add value. They will need also to understand the FCA’s logic that it is possible to act in the interests of the company’s shareholders, as required by company law, while acting (also) “solely in the interests of unitholders”.

Will the value for money assessment be good value for money? The definition of value will shortly rule the world of investment funds. FCA has made its pitch; if the industry is unconvinced, now is the time to speak.

Let us also note, since FCA chooses not to, the spill-over effect where AFMs carry out additional activities, such as management of unregulated schemes and of segregated portfolios. The same independent directors will be responsible for all of the company’s activities, even when only the authorised funds require their appointment. More risk, more expertise.

Then there is the matter of the box, where the industry gets a good ticking-off. FCA has convinced itself that riskless box profits are evidence of failed competition. Unwelcome as the comparison might be, if you ask the requisite salesman to find you a second-hand car, you might not be surprised if, when delivering, he marked up the price to make it worth his while. And that would likely remain true, notwithstanding his contract to maintain the new motor for you. The regulator admits that its solution – to hand over the profits to the fund – is no more than pragmatism, albeit performance enhancing.

And what of share classes? It would be a brave firm that openly complained that it will be increasingly difficult to keep investors strapped into share classes with premium charges. As FCA contemplates cutting off the trail commission pensions of scores of retired IFAs, the pressure to release the investors that have funded the cashflow will be overwhelming. This could be the next compensation leviathan.

So, what have they not discussed? A passing mention there may be, but certainly no discussion of the role of the depositary. Many people would say that a key aspect of their role was to look after the interests of unitholders. Where the depositaries have the added lustre of trusteeship, the fiduciary element is hard to miss. Nevertheless, it takes FCA just two sentences to dismiss their capacity to take on tasks so closely related to that cause. With their snide allusion to conflicts of interest, FCA dismisses the whole depositary tribe…. but leaves them firmly in situ. It is hard to escape the belief that this is a bullet unbitten.


Oliver Lodge is Director at OWL Regulatory Consulting, adviser to the investment industry on matters of regulation.You can find out more about OWL by visiting the website: