City watchdog unveils new rules for fund managers
The financial regulator has published updated guidance for asset managers, as it looks to ensure consumers better understand how their money is managed.
The Financial Conduct Authority said that all fund managers must clearly set out a fund’s objectives and investment policies, as well as explain why or how their funds use particular benchmarks.
Other rules announced by the FCA include benchmarks being referred to consistently across documents; that a fund’s past performance should be presented against each benchmark “as a constraint on portfolio construction or as a performance target”; and ensuring that when a performance fee is specified in a prospectus, it is calculated after the deduction of all other fees.
The FCA launched a wide-ranging probe being into the asset management industry three years ago. It was concerned that consumers were not receiving clear information about their investments or how they are performing, leaving them vulnerable to overpaying for funds or not receiving value for money from fund managers.
Christopher Woolard, the FCA’s executive director of strategy and competition, said: “We are working to make competition work better in the asset management market and protect those less able to actively engage with their investments.
“Today’s remedies build on those we’ve already introduced and will make it easier for investors to choose the best fund for them and help achieve their investment objectives.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Good communications are vital to helping investors make informed investment decisions. Clearer fund objectives, combined with better disclosure of benchmarks, will go some way to achieving that goal.
“Disclosure of investment constraints is particularly useful for investors seeing to identify closet trackers, which are likely to deliver consistent underperformance and poor outcomes for consumers.
“It’s important that standards are upheld across the industry, and that includes closed funds, where information can be difficult for investors to find.”
The rules will come into effect for new funds in May and for existing funds in August.