FCA: Expectations an issue for fund managers
11 April 2016 London
Image: Shutterstock
The majority of asset managers are meeting the expectations of their investors, but some are still failing, a review by the UK Financial Conduct Authority (FCA) has found.
Although most of the asset managers reviewed were taking steps to manage funds in the way they said they would, the FCA still found examples of “unclear product descriptions and inadequate governance or oversight”.
The review looked in to whether UK authorised investment funds and segregated mandates were operating in line with investment mandates and adhering strategies set out in their own marketing and disclosure material.
It focused specifically on FCA rules, rather than on fund performance.
While the majority of funds were found to be clear with investors, providing explanations of the aims and strategies, some did not provide clear enough explanations of how they were managed, according to the FCA.
Some did not disclose constrained investment strategies, and one included jargon that the FCA said “ordinary investors would be unlikely to understand”.
The review took in to account funds that were no longer marketed to consumers, and found that none of these types of funds was clearly disclosing its investment strategy to its customers. Fund managers here did not have the appropriate oversight to make sure funds were managed in line with stated investment policy, the FCA said.
Finally, not all firms carefully monitored the distribution of their funds to make sure they were sold appropriately through third parties. Two funds in the sample were found to be available on execution-only platforms, although the fund managers had intended for them to be available only with advice.
Five of the firms, however, were found to be investing in smarter ways and analysing data from their distributors, in order to better understand the type of customers investing in funds.
Megan Butler, FCA director of supervision for investment, wholesale and specialists, said: “Firms are generally managing funds as they say they will. In most circumstances they are clear about how they are going to invest and have the correct level of oversight to ensure practice follows promise.”
“However, the industry needs to consider how it communicates when funds are linked to financial benchmarks. It is also vital that funds keep investment practices under review so they match their stated aims and strategy, irrespective of whether the fund is still actively marketed, because investors base their decisions on this information.”
The FCA is currently writing to firms involved in the review to provide individual feedback, and some will be required to make improvements.
The review included 19 UK fund management firms responsible for 23 UK authorised funds and four segregated mandates.
Although most of the asset managers reviewed were taking steps to manage funds in the way they said they would, the FCA still found examples of “unclear product descriptions and inadequate governance or oversight”.
The review looked in to whether UK authorised investment funds and segregated mandates were operating in line with investment mandates and adhering strategies set out in their own marketing and disclosure material.
It focused specifically on FCA rules, rather than on fund performance.
While the majority of funds were found to be clear with investors, providing explanations of the aims and strategies, some did not provide clear enough explanations of how they were managed, according to the FCA.
Some did not disclose constrained investment strategies, and one included jargon that the FCA said “ordinary investors would be unlikely to understand”.
The review took in to account funds that were no longer marketed to consumers, and found that none of these types of funds was clearly disclosing its investment strategy to its customers. Fund managers here did not have the appropriate oversight to make sure funds were managed in line with stated investment policy, the FCA said.
Finally, not all firms carefully monitored the distribution of their funds to make sure they were sold appropriately through third parties. Two funds in the sample were found to be available on execution-only platforms, although the fund managers had intended for them to be available only with advice.
Five of the firms, however, were found to be investing in smarter ways and analysing data from their distributors, in order to better understand the type of customers investing in funds.
Megan Butler, FCA director of supervision for investment, wholesale and specialists, said: “Firms are generally managing funds as they say they will. In most circumstances they are clear about how they are going to invest and have the correct level of oversight to ensure practice follows promise.”
“However, the industry needs to consider how it communicates when funds are linked to financial benchmarks. It is also vital that funds keep investment practices under review so they match their stated aims and strategy, irrespective of whether the fund is still actively marketed, because investors base their decisions on this information.”
The FCA is currently writing to firms involved in the review to provide individual feedback, and some will be required to make improvements.
The review included 19 UK fund management firms responsible for 23 UK authorised funds and four segregated mandates.
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