FCA panel calls for radical fund management reform on costs

A panel advising the Financial Conduct Authority (FCA) has suggested that money managers should disclose the full cost they charge to manage £5trn of British capital.

The Financial Services Consumer Panel said money managers could be required to produce a single annual charge. All other costs currently charged by them directly from the fund would be borne by the investment management firm.

The panel said in a statement on Monday: "These costs have a significant impact on returns, but new research commissioned by the Panel suggests that retail customers do not know what costs they will face when they invest."

This followed concerns that the annual management charges disclosed by money managers currently might represent as little as a quarter of the actual costs, because investment managers deduct many other hidden charges directly from the fund.

The panel decided that a single number encompassing all costs would not only help investors compare rates, but would encourage efficiency among money managers.

Su Lewis, chairman of the panel, said: "Poor disclosure, weak governance and multiple conflicts of interest mean that competition in the investment market is not working in the best interests of consumers."

Of the £5trn worth of assets managed by Britain’s fund management industry in 2013, £1trn came from retail investors and £1.4trn from pension funds.