Asset managers have called for stricter oversight of the UK’s hugely influential investment consulting industry after Britain’s financial watchdog warned of conflicts of interest and a lack of transparency in the sector.
The Financial Conduct Authority expressed concerns about “opaque fees” and a lack of competition in the institutional advice sector in a damning interim report on the asset management industry last November.
The regulator said it was considering seeking more regulatory powers over investment consultants, who advise on where £1.6tn worth of people’s savings should be invested. The FCA expressed concerns that a “very important part of the asset management value chain” is currently largely unregulated.
The FCA’s stance has been backed by asset managers, trade bodies and some consultants, which claim greater regulation of the institutional advice sector is vital to improve services and investment returns for pension funds and other big investors.
The Investment Association, the trade body for fund houses in the UK, said in its response to the FCA report: “Investment consultants play a central role in the institutional asset management market and the quality of their advice is likely to be crucial in determining outcomes for institutional investors.
The trade body added that it “strongly” supported proposals to bring institutional investment advice into the FCA’s regulatory perimeter and backed proposals to refer the investment consulting industry for investigation by the Competition and Markets Authority, a government department responsible for strengthening business competition.
The FCA’s spotlight on the investment consulting market comes as concerns mount about the influence of the sector.
The FCA said: “We heard a persistent concern from asset managers and institutional investors that once an investment consultant has developed its own product offerings, it will recommend its in-house propositions even if there are better investment products offered elsewhere.”
According to KPMG, the professional services company, three-quarters of all fiduciary mandates went to consultants last year.
The regulator also warned that performance and fees of fiduciary managers appear to be among the most opaque parts of the asset management value chain.
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