Christopher Woolard of the FCA. Photographed at the FCA. Canary Wharf. 7/10/15
Christopher Woolard of the FCA. © FT

The UK’s £6.6tn asset management industry is facing a sweeping antitrust review over the fees it charges, underlining how regulators are increasingly turning their focus from banks to other key parts of the financial sector.

The UK Financial Conduct Authority said on Wednesday it would probe how costs are controlled, and the particular role of investment consultants on competition among institutional asset managers as it set out further detail of a market study into the industry. The watchdog will examine how well both retail and wholesale customers are served, it added.

Investment consultants have a big say over which asset managers clients use. Some asset managers say the big groups, such as Towers Watson and Mercer, have too much influence over the sector.

The inquiry comes amid mounting concern among policymakers on the role of asset managers and the funds they oversee. There is particular worry over a potential wave of redemptions when interest rates move from their historic lows.

The FCA’s focus on whether clients are getting value-for-money comes after a spat within the industry: members of the trade body, the Investment Association, ousted its head, Daniel Godfrey, after he spoke out on reforming often opaque fees.

“I’m not sure costs and charges are actually designed to confuse the consumer, but the effect of a very complicated costs and charging structure does confuse,” Mr Godfrey told the Financial Times on Wednesday.

Chart - UK assets under management

The FCA already flagged its concern to asset managers this year that they are not doing enough to prevent insider trading and market abuse. It then put them on notice in March that it would examine how well competition was working, although Wednesday was the first time detail was given.

“The UK is a world leader in asset management,” said Christopher Woolard, the FCA’s director of strategy and competition. “Our market study aims to ensure that both retail and institutional investors can get value for money when purchasing these services.”

Market studies are tools that can lead to structural reform — even if there has been no technical breach of antitrust laws — and can spark enforcement investigations if there is evidence of wrongdoing. These are particularly serious in the context of competition regulations because they give the watchdog the power to fine a company as much as 30 per cent of its relevant global turnover.

It is the second such study launched since the FCA gained competition powers this year; it also has a study into wholesale banking.

There has been concern that consultants do not always respond as swiftly as they should to market trends, such as the growth of passive investing and the use of smart beta, which is a hybrid of active and passive investing.

However, others say consultants are an important part of the investment ecosystem as they offer an independent way of judging which funds and fund managers offer the best value and most consistent performance.

“We agree it is essential the whole investment chain functions effectively for its clients,” said the Investment Association. “We welcome the FCA’s decision, alongside its core focus on investment managers, to also consider the role of distributors and investment consultants, reflecting their critical role in delivering the best outcomes for our clients.”

The FCA will publish its interim findings next summer but its final report will not be ready until early 2017, it said.

“Sadly the study is a huge indictment on the FCA. Why do they need a study to do their job? It should already be blindingly obvious to the FCA that the asset management industry is blighted by high, complex fees, excessive risk-taking and extensive conflicts of interest,” said Gina Miller, co-founder of investment boutique SCM Private.

Additional reporting by Claer Barrett, David Oakley and Madison Marriage

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