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Financial Conduct Authority


Ever since UK regulators first announced they would launch a sweeping antitrust review of the asset management industry back in March, fund managers have been a bit on edge waiting to hear the details.

The Financial Conduct Authority has now provided more information as to what the review will entail, explaining that they will be focusing the study on competition in the asset management industry for both retail and institutional investors and will be assessing the following:

  • how asset managers compete to deliver value;
  • whether asset managers are motivated and able to control costs along the value chain; and,
  • what effect investment consultants have on competition for institutional asset management.

They will also be looking at whether there are any barriers to innovation and/or technological advances in asset management.

Director of Strategy and Competition at the FCA, Christopher Woolard, explained:

“Asset managers provide an important economic function, bringing together those with money to invest and companies and governments that need capital. Given the significant role they play in the economy, it is essential that competition works effectively for these services.


“The UK is a world leader in asset management. Our market study aims to ensure that both retail and institutional investors can get value for money when purchasing these services – which we expect to further strengthen the UK’s position as a major centre for asset management.”

Chart - UK assets under managementThe FCA will be publishing interim findings highlighting areas of concern by summer 2016 and a final report in early 2017.

Fund managers are bracing for a hit to their current business models. UK’s asset management industry, which is Europes biggest, currently has approximately £6.6 trillion invested. This includes around £2.1 trillion in pension fund investments, £1.2 trillion in retail investment products, £0.4 trillion in public sector and charity investments, £1 trillion in insurance products, and £1 trillion in non-mainstream asset management products.

Saker Nusseibeh, chief executive of UK investment group Hermes, is already preparing for what he believes the outcome will bring.

“This is very clearly a move to make the industry lower its margins. The margins are high — 35 to 45 per cent.”

Some are saying that the investigation will help put an end to the high fee structures fund companies use to boost profitability and enable investors to spot overpriced funds more easily, allowing them to switch to cheaper alternatives.

But, due to the inaction seen by the FCA until now and their dependence on the idea of self-regulation, many asset management executives think the FCA’s investigation is likely to be too soft and ultimately fail to fully tackle the industry’s failure to put investors first and improve the way the market operates.

One of the most controversial issues regulators have been called on to address is “closet tracking,” whereby funds are priced expensively for active management but are treated more like an index tracker.

Competition issues the FCA expects to address include:

  • the difficulty investors have in making sure they are getting value for money and in monitoring the performance of asset managers;
  • the role of investment consultants and potential conflicts of interest arising from the provision of advice and asset management services
  • the incentives and ability of asset managers to control costs incurred on behalf of investors; and
  • the bundling of ancillary services and the quality of some of the services provided.

The FCA’s ultimate objective is to promote competition in the interests of consumers. Market studies like these are important tools that can lead to real structural reform even when there has been no technical breach of antitrust laws. Of course, if there is evidence of wrongdoing, this can also bring on more rigorous enforcement investigations down the line.

Mickael Marsali is a Senior Consultant within the UK’s financial sector. Please visit his main website for more info.