What We Learned from the FCA’s Asset Management Study

Recently, the FCA issued their findings following a review into the Asset Management Industry which has received significant media attention in the press and online. Whilst this study was not strictly intended to include a review of the advice market, much of what has been concluded does have a direct impact. Here are the headlines that we have taken away from this report:

  • Interestingly, the report seems to pivot from the rhetoric of the interim findings and has clarified that passive funds were not necessarily preferable to active funds. A topic that continues to be vehemently debated.
  • Another interesting discovery was that, on average, both actively managed and passively managed funds did not outperform their benchmarks after fees.
  • The report also highlights a concern over evidence of weak price competition across the asset management industry. It was discovered that there is no clear relationship between charges and gross performance, suggesting that, higher costs does not guarantee better returns. There is however some evidence of a negative relationship between net returns and charges, which implies that higher costs erode net performance. Who would have thought!

So, as the debate of ‘Active vs. Passive’ rages on, there remains no clear evidence to suggest that outperformance is consistently achievable, anywhere, and it seems to be irrefutable that ‘Costs Matter!’, which remains one of our core beliefs.

Ultimately, we deem the findings of this report to be a vindication of our investment philosophy and overall approach. We therefore continue to believe that efficiently harvesting the market return at the lowest possible cost remains the most suitable strategy.

Jigsaw Solution

On the back of this review, the FCA has outlined some remedies that that they plan to work on over the coming months and years, in hope of improving the value provided by the industry to retail investors. These include:

  • Strengthening the duty on asset managers to act in the best interests of investors.
  • Increasing the transparency of costs so that those seeking information can get it.
  • Supporting the disclosure of a single all-in fee to investors.
  • Launching a market study into the value provided by investment platforms.

This comes as welcome progress towards a more transparent investment industry with a more prominent focus on the interests of investors. We look forward to seeing what more comes of this and will keep you apprised of any interesting developments.

Posted by:
Dan Clark

July 19th, 2017

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