FCA: interim report on asset management market study

Business meeting 16 Print publication


The Financial Conduct Authority (FCA) has published its interim report on the asset management market study.  The FCA’s analysis indicates that there is weak price competition in a number of areas of the asset management sector.  In addition, the FCA is consulting on whether to make a market reference to the Competition and Markets Authority (CMA) on the investment consultancy market.


On 18 November 2016, the FCA published an interim report of its market study on the asset management sector.  This report was intended for publication in summer 2016.

The market study, launched in November 2015, arose from the FCA’s 2014 review of competition in the wholesale sector.  It was launched in order to understand whether competition was working effectively in the asset management sector and whether institutional and retail investors are getting value for money when purchasing asset management services.  Further information on the terms of reference, topics covered and the background on the FCA’s market study can be found in an article we published last year following the launch of the market study launched.

In summary, the FCA’s main finding is that price competition is too weak in a number of areas of the asset management sector. It has identified concerns in relation to whether the market is providing value to customers (both for retail and institutional investors).  The FCA has proposed a number of potentially significant remedies.  The findings and potential remedies are considered further below.

The FCA’s interim findings

Findings identified in the report include the following:

  • charges are higher for actively managed funds but do not necessarily reflect better performance compared to charges for passive funds
  • whilst charges for passive funds have fallen over the last five years, charges for actively managed funds have stayed broadly the same
  • very few asset management firms lower charges to attract investment, particularly for retail investors
  • as fund size increases, pricing does not appear to fall, suggesting that economies are captured by the fund manager rather than being passed on to investors
  • whilst progress has been made in improving market transparency, there are concerns around how asset managers communicate objectives and outcomes to investors
  • customers are generally not active in managing their investments and engaging with asset managers and there is a lack of customer switching
  • there are concerns as to the value provided by platforms, advisers and other retail intermediaries
  • the investment consultancy sector is heavily concentrated (meriting consideration of a market reference to the CMA – see below).

The FCA’s proposed remedies

 The interim report identifies a package of remedies. These include:

  • a strengthened duty on asset managers to act in the best interests of investors, including reforms to hold asset managers to account in relation to how they deliver value for money
  • requiring clearer communication of fund changes and their impact at the point of sale and in ongoing communication to retail investors
  • requiring increased transparency and standardisation of costs and charges information for institutional investors
  • introducing an “all-in” fee approach to make it easy for investors to see what is being taken from the fund
  • a number of measures to help retail investors identify the most appropriate fund, such as requiring asset managers to be clear about the objectives of the fund, clarifying and strengthening the use of benchmarks and providing tools for investors to identify persistent underperformance
  • exploring with the Government the potential benefits of greater pooling of pension scheme assets
  • recommending that HM Treasury considers bringing the provision of institutional investment advice within the FCA’s regulatory perimeter.

Market investigation reference to the CMA

The FCA is also consulting on whether to make a reference to the CMA for an 18 month in-depth market investigation in relation to the institutional investment advice sector.  Market investigations are detailed examinations as to whether there are any features of a market that result in an Adverse Effect on Competition.  The CMA has a wide range of remedial powers, including structural remedies (e.g. divestiture), behavioural remedies (e.g. price caps) or it can make recommendations for action (e.g. to Government or other regulator bodies).

Next steps

The FCA states that it is publishing the interim report to give all interested parties an opportunity to comment on its emerging thinking and analysis.

The FCA is now consulting on its interim findings and proposed remedies. The FCA’s consultation closes on 20 February 2017.

The FCA expects to publish its final report, setting out it key findings and confirmation of remedies, in Q2 2017.


At the interim stage of this market study and on the evidence it has seen to date, the FCA has identified a series of concerns for competition in the asset management sector. The remaining stages of this study present an opportunity for firms involved in this sector to demonstrate to the FCA how they compete in the market and offer value to their customers.

We would recommend that firms review the findings and proposed remedies in the interim report to consider the potential impact at both a firm and industry wide level. This will be a final opportunity to influence the remedies proposed by the FCA.

For investment consultants, the possibility of a CMA market investigation will require consideration and may warrant active engagement with the FCA between now and 20 February 2017 (when the consultation on a potential reference comes to an end).  The CMA process can be very demanding on the internal resources and management time of the firms under review.  It will be important for the FCA to gain a through understanding of the parameters of competition in the sector and whether a full market investigation is justified.

If you would like further information or assistance regarding the FCA’s market study or the proposed CMA market investigation, please contact Trudy Feaster-Gee, Partner (Barrister).