Opening up the windows of the fund management house

For such an important constituent of the UK economy and people’s financial health, fund management can be an arcane business. There is no cartel, but price competition is not leading edge. The cost structure that investors pay for is, by turns, opaque and abstruse. The sector is infested with mar- keting jargon: with helicopter views and conviction investment (whatever that is) not infrequently meeting bottom-up management apparently in mid-air.

That’s why the Financial Conduct Authority’s crackdown on the £7 trillion industry is welcome. If the FCA can inject some clarity and transparency into the way asset managers earn their money and earn their investors money it will be an achievement.

Fund management has been cosily esoteric for too long. It needed a look at from the outside. A particularly welcome proposal from the regulator is that investors should only have to pay a single, well-disclosed “all-in” fee. As Martin Gilbert, chief executive of Aberdeen Asset Management, says, it should be straightforward to incorporate dealing charges for equity funds, particularly where there is low portfolio turnover.

Another positive proposal is that asset managers will have to appoint a minimum of two independent directors to their boards to keep the industry in touch with the outside world and discourage what is too often sterile groupthink.

Equally, the FCA wants individual fund managers, using the regulatory Senior Managers Regime, to have more individual accountability in acting in the best interests of their clients. Having yardsticks by which asset management performance can be measured is important, while it should be made easier for savers to switch between asset classes.

The Investment Association, the trade body for the multi-trillion pound industry, welcomed the FCA’S proposals, but called for a “pragmatic timetable” given the major regulatory changes already in the works and the complications of the Brexit negotiations.

That is an understandable call, but given that the FCA’S proposed changes are robust and reasonable rather than doctrinaire and draconian it is to be hoped that the regulator moves nimbly on reforms that have been a long time in coming.