A short while ago I blogged on the FCA’s Asset Management Market Study Terms of Reference, published in November. That blog (part 1) can be found here http://blog.ptluk.com/asset-management-time-for-a-cold-shower. I followed that up with another blog (part 2) on the various names used to describe annual investments charges. That can be found here http://blog.ptluk.com/a-laymans-guide-to-the-ongoing-annual-investment-charge.
Part 3 of 3 in our blog series on The FCA's asset managers market study.
In the terms document, FCA argues that the market, worth £6.6tn in 7000 funds managed by 1784 managers, is dysfunctional.
In this third and final blog of the mini series I suggest a solution.
By the time you read this, I will be up a mountain, in sunshine skiing on perfect and unspoilt powder. Skiing remains a hugely popular sport. Every year millions of people climb the mountains to put life, limb and often liver at risk for a week or so. Many of these people hire their gear: boots, poles and skis.
Personally, I own most of my own gear. The one item I am missing is, and rather crucially, a pair of skis. This though is deliberate. By renting skis I don’t have to worry about getting them through airports, about technology improving or about skiing over rocks and gravel. It’s just better.
This only works, though, because ski bindings (the structure bolted to the ski into which you put your boot) are standardised albeit adjustable. The whole ski rental market exists only because there is standardisation. It’s the same in other many other markets: cars have common standards, confectionary does, so do beer and wine. In fact, there’s a whole European gravy train to be ridden by those wanting to standardise markets.
As my second blog in this miniseries demonstrated, the level of standardisation in asset management is low. Any feature or cost can vary in substance, calculation or presentation from one manager to the next.
This may be why the market is dysfunctional.
If manager A presents his cost as an AMC, its hard to compare him with manager B who presents his costs as an OCF (because its not apples and apples). It is, however, also difficult, arguably more so, to compare him to manager C who also presents his costs as an AMC, but calculates his AMC differently. This is like having ski bindings A calibrated metrically and ski bindings C calibrated in imperial. It’s no wonder it’s difficult to work out how to get your boots to fit.
The lack of standardisation isn’t limited to charges, it extends to the calculation and presentation of investment returns (fairly crucial), risk and even fund description (no two DGFs are the same, neither are any two fiduciary management products) to name just a few items.
So the solution?
The FCA need to drive some standardisation into the market. Only when the consumer can compare apples with apples, or know that their ski boot will fit in the bindings available at any hire shop, will a competitive, more functional market, emerge.
For more information contact Richard Butcher