A managing director at Tilney Bestinvest has warned that UK-listed companies could see their share prices hit as a result of the findings.

Industry figureheads have warned that the UK asset management sector will feel the “full force” of the Financial Conduct Authority's powers after a regulatory study last week highlighted a plethora of concerns over transparency and value for money. 

The UK's asset management industry is the second largest in the world, with almost £7 trillion ($8.7 trillion) of assets under management. 

Last November, the FCA launched a market study to assess whether competition in the sector is working effectively by examining the cost-to-value ratio that institutional and retail investors receive when purchasing asset management services.

The interim findings of the study revealed “weak price competition” levels in numerous areas of the industry, as well as an overall lack of transparency regarding charges and their impact on returns.

There is limited price competition for actively managed funds, meaning that investors often pay high charges which, on average, are not justified by higher returns, according to the FCA.

However, the regulatory body reported stronger competition on price for passively managed funds, but noted that it also found some examples of poor value for money within the segment.

Additionally, there are conflicts of interest in the investment consulting business model which require further scrutiny, the FCA said. Consequently, the UK's financial watchdog has proposed a package of remedies designed to better market competition while protecting those “least able to engage actively with their asset manager”.

Among the proposed solutions is the introduction of an “all-in fee”, which would allow investors to “easily see what is being taken from the fund”, according to the regulator. The FCA also seeks to require “greater and clearer” disclosure of fiduciary management fees and performance.

While many organisations and associations across the board have welcomed the FCA's findings with open arms, certain industry voices have been less embracing of the regulator's guidance.

“Today's findings present a significant challenge to the asset management sector,” said Mark Pugh, UK asset management leader at PricewaterhouseCoopers. “We've been expecting the regulator to make substantial use of its wide ranging competition powers, and today's interim findings suggest that the asset management sector will feel their full force.”

Pugh stressed that asset managers have already focused on transparency and cost but the FCA's findings suggest they “clearly need to do more”.

He noted that although regulatory remedies should be welcomed by the industry, “the diversity of the asset management sector is critical to the success and growth of the UK, and the FCA must balance this in its approach”.

“Some of the FCA's remedies may reduce 'costs' to consumers, but we must be careful not to focus purely on 'cost' to the detriment of 'value',” Pugh said.

Jason Hollands, a managing director at Tilney Bestinvest, one of the country's largest asset managers, was also concerned over potential detriment the FCA's study could cause to the industry.

“I would expect the study published [last week] by the FCA to weigh negatively on the share prices of UK-listed managers today, especially those with sizeable retail client books,” he said.

Echoing Pugh's thoughts, Hollands said: “Some might question whether a primary emphasis on cost is an appropriate measure of competition for products that are designed to deliver performance.”

Hollands added that greater clarity around costs and performance would clearly be helpful to investors, but not without implications for the industry.

“The implications of all this for management groups, however, are higher regulatory and compliance costs on the one hand and further pressure on fee margins on the other, at a time when traditional active managers are facing much greater competition from the passive industry through the rapid growth of the exchange-traded fund market,” he said.

Commenting on the FCA's study, Andrew Bailey, the group's chief executive, said: “Asset managers are responsible for the savings of millions of people in the UK, making decisions which affect their financial well-being both now and in the future. 

“We want to see greater transparency so that investors can be clear about what they are paying and the impact charges have on their returns. We want asset managers to ensure investors receive value for money through pursuing energetically their duty to act in their customers’ best interests.”

The FCA is also consulting on whether to make a market investigation reference to the Competition and Markets Authority on the investment consultancy market and has recommended that HM Treasury, the UK tax authority, consider bringing the provision of institutional investment advice within the FCA’s regulatory perimeter.