Asset managers have 18 months to implement the new conditions.

UK asset managers will have to annually assess the value for money their funds offer under new rules drafted by the Financial Conduct Authority.

Fund managers will also be required to appoint at least two independent directors to their boards under the rules, which were announced yesterday and drafted in response to competition concerns identified by the FCA in its asset management market study last year.

The package of remedies is designed to ensure fund managers compete on value they deliver and act in clients’ interests, the FCA said. Last year, the watchdog unveiled weak price competition across numerous areas and suggested investors “may pay too much for investment management services”.

The FCA also announced “technical changes” to improve fairness around how fund managers profit from investors executing fund trades and when moving investors into cheaper share classes. “These measures will deliver better protection for all investors, both those who are actively engaged with their investments and those who don’t follow their investments closely,” the FCA said. 

The regulator pointed out that even actively-engaged investors often find it difficult to choose suitable funds and, as a result, it has published a further consultation on remedies related to information about fund offerings. 

This includes proposals on: how fund objectives can be more clearly expressed; improving clarity on benchmarks; and ensuring multiple-benchmark funds are disclosed consistently and explained to investors. 

“Today’s announcements are an important part of a package of measures that, combined, aim to achieve a fair, transparent, open and accountable market,” Christopher Woolard, executive director of strategy and competition at the FCA, said. 

David Barron, chief executive of Miton, the UK asset manager, said the “revised focus on value is to be welcomed”, but stressed that “low costs don’t necessarily equate to value”, adding this is a “much broader issue”.

He continued: “We are also pleased to see a further consultation on objectives and benchmarks. What a fund seeks to achieve and how, and whether it delivers, is central to the value assessment. We believe that a manager offering differentiated yet straightforward active strategies with the prospect of good long-term returns after all costs, adds the real value.”

According to Niral Parekh, head of UK retail asset and wealth management at Capco, “the industry as a whole will take some time to implement this given the balance that needs to be struck on detailing complex performance calculations and cost mechanics in ‘plain English’ to the end investor”.

He agreed with Barron on the notion that “what is ‘value’ to one investor group may not necessarily be ‘value’ to the other”. He added, however, that “we see an opportunity in enhanced investor relations/communications and also a role for behavioural analytics to further augment an asset manager’s understanding of investor behaviour and needs”.

Dan Brocklebank, head of UK at Orbis Investments, supported the FCA’s move. 

“It’s encouraging to see that the FCA remains supportive of innovative fee models which help improve the alignment of interests between managers and their clients,” he said. “That’s what really matters at the end of the day.”