Regulatory pressure is having a positive impact for fund investors.
Various regulatory reforms over the years have forced fund managers to become more open with investors, but the latest ‘value for money’ initiative has spurred some fund managers into taking action on poor performing funds.
Under new rules set out by the Financial Conduct Authority, which came into effect at the end of last September, fund management firms are required to publish annual fund reports on the ‘value for money’ of their fund products. The reports must be publicly available on the fund manager’s website, as well as being sent to investors who request the information.
Given that each fund management firm has different yearly financial reporting periods for funds, not all the value for money reports are yet available, but within the small sample of those published so far there have been some interesting trends that will benefit private investors.
Most notably, some fund firms have taken action on poor performing funds either through undertaking a review of the fund, reducing fund charges or closing down the fund. Rathbone, for example, which was one of the first fund firms to publish its value for money report, reduced charges on the Rathbones UK Opportunities fund to 0.45% and closed down the Rathbones Global Alpha fund.
Schroders, meanwhile, said it will take action in reducing charges for funds with assets of over £1 billion, in order to pass on economies of scale.
Another firm that has taken action is Invesco, which has reduced fees on around a dozen funds, following its value for money assessment.
In another welcomed trend, some fund groups, again including Rathbones, Schroders and Invesco, have moved their direct investors in ‘legacy’ share classes into ‘clean’ share classes, which have no inbuilt commission charge and are therefore cheaper.
Threadneedle and Artemis have adopted the same approach. Threadneedle identified that 55 of its 435 share classes were providing ‘poor value’. As a result, it is moving all of its 30,000 non-advised direct investors to the lowest-cost fund share class. Artemis has transferred 9,000 customers into cheaper share classes.
Mike Barrett, consulting director of platform consultancy the lang cat, notes the reports are having a positive impact for investors as fees are being reduced.
“Most of the active ones I’ve seen have some fee reductions. While fee cuts have not been across the board, I wouldn’t necessarily expect that to be the case. The process requires each individual fund to be assessed. I do think these reports should make a positive difference to all fund fees, providing fund groups take them seriously.”
Barrett adds that from reading some of the first wave of reports, some fund groups are “clearly treating the process seriously, but there’s the risk some fund firms will view the reports as a box-ticking exercise”.
He adds: “The Financial Conduct Authority have stated within their 2020/21 business plan that they will be doing more work in this space to see how these reports are being implemented, which should help further define exactly what their expectations are and what good practice looks like.”