A regulatory review of a sample of investment fund managers has found that most had not implemented Assessments of Value (AoVs) that met the standards required by the Financial Conduct Authority (FCA).

The review covered a range of 18 fund managers, with research taking place between July 2020 and May 2021.

The FCA requires authorised Fund Managers to carry out an AoV at least once a year.

They put this regulatory requirement in place following their Asset Management Study, which found evidence of weak demand-side pressure in the market for authorised investment funds, leading to a lack of competition on fees and charges.

Accordingly, the new rules required fund managers to assess whether their fund fees are justified by the value provided to investors using a set of minimum considerations.

Details of the AoV have to be reported to investors, along with a clear explanation of what action has been taken if the charges are not justified.

The FCA’s review found that, while some fund managers have been conducting AoV assessments well, too many fund managers made assumptions that they could not justify, undermining the credibility of their assessments.

When considering the fund’s performance, many managers did not consider what the fund should deliver given its investment policy, strategy and fees.

Investment fund managers spent a disproportionate amount of time looking for savings in administration service charges, which cost investors relatively little compared with the time spent reviewing asset management and distribution costs, which typically cost investors much more.

Other fund providers did not meet the expected standards by using poorly designed processes, leading to incomplete value assessments. For example, some firms in the survey failed to assess elements such as fund performance, costs and classes of units or were unable to perform assessments at share class level. The FCA also found that some of the independent directors of the governing bodies of fund managers did not provide the robust challenge they expected and appeared to lack sufficient understanding of the relevant rules.

In conclusion, the FCA expects more rigour from fund managers when assessing their funds’ value to help ensure that investment products represent good value for investors.

The FCA plans to review firms again within the next 18 months to see how they have responded to this feedback.

They will then consider using other regulator tools if they find firms are not meeting the required standards.

About the author

Trading and Investment

Traded the markets for over 15 years, including Commodities, Bonds, Currencies, Equities, and Indices. I have also worked as a Chartered Financial Planner.
CeMAP, CeFA, DipFA, AdvDipFA, Ba(Hons) Economics, Chartered ALIBF

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