Surviving the UK asset management shake-up
Kevin Claypoole-McCloskeyManaging Director
When the Financial Conduct Authority (FCA) launched its market study into the UK asset management sector in November 2015, a storm cloud began brewing over the industry. Now, 19 months on, the city watchdog has published the report and confirmed the ‘remedies’ it wants to see put in place.
The new regime
The FCA’s primary wish, according to its recently published final report, is to restore public trust in the UK asset management sector and do away with historical conflicts of interest. The watchdog has therefore proposed a package of so-called remedies (see Figure 1 below) designed to work alongside regulatory initiatives impacting the sector, including MiFID II.
The UK’s asset management industry is the second largest in the world, managing around £6.9 trillion of assets. Over £1 trillion is managed for UK retail investors and £3 trillion on behalf of UK institutional investors. The industry also manages around £2.7 trillion for overseas clients.
As well as strengthening the duty on asset managers to act in the best interests of investors, the FCA’s final report places much greater scrutiny on fees.
“the remedies package also seeks to enable those investors who are able to, to exert greater competitive pressure on asset managers. It will increase the transparency of costs so that those seeking information can get it.”
Judging from the text of the final report, which will still undergo some consultation but is unlikely to change significantly, the regulator is pushing towards an all-in fee for retail investors. The FCA also calls for “consistent and standardised disclosure of costs and charges to institutional investors.”
Another objective is to provide greater clarity of fund objectives and performance reporting. Then there is the question of independence of the fund’s Board from the asset management house. Finally, the package seeks to improve how effective intermediaries are for both retail and institutional investors.
What’s interesting, especially from a marketing perspective, is that many of the proposed remedies revolve around better communication. At the moment, traditional asset managers often operate in a world of smoke and mirrors. Today’s consumer expects complete transparency, especially around fees, and – by and large – that’s what they are getting from new online investment portals.
This highlights an additional need for asset managers to reiterate that there is more to ‘value’ than price alone. Clever articulation of their value proposition will be required. And in a sector where the FCA is aiming to level the playing field, a true USP will be essential.
A double-edged sword
In addition, asset managers will need to revamp fund factsheets, brochures and their content marketing campaigns. The challenge here will be communicating in a manner that is clear, yet engaging. Moreover, asset managers will have to cater for the lowest common denominator, whilst still appealing to the sophisticated investor.
Communications will therefore need to meet higher regulatory standards, but also be part of a more thoughtful customer journey. One that caters to the needs of all investors, while responding to their specific requirements in a personalised and dynamic way.
Arguably, those asset managers who can embrace this more transparent and targeted way of communicating stand a better chance of thriving post-reforms, rather than simply surviving.
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