Is it time we actively managed the fund groups?

The interim report of the FCA’s Asset Management Market study was fiercely critical of the industry. The damning verdict was that the industry is hugely profitable but uncompetitive and often delivers poor value to customers.

The industry was therefore braced for sweeping changes to be detailed in the final report but was either disappointed or relieved, depending on where you sit. Although the rhetoric was still strong, there were very few specific actions and a lot of talk of further consultation.

From our perspective this was a disappointment because the asset management industry is ripe for reform. There are too many examples of fund groups making huge profits, while delivering poor returns for investors and this balance needs to be tipped back in favour of the consumer.

Of course there are some high quality fund managers delivering great value to investors but unfortunately there is a far higher proportion of poorly managed active funds that aren’t delivering good value.

Some of the measures confirmed in the final report should improve transparency of charges and make it easier to judge which funds are delivering good value.

The fact remains though that there are hundreds of billions of pounds stagnating in poor-performing funds. Without advice, it is hard to see what will be the catalyst to unlock this and move it to better-performing funds.

That is one area we’d like to have seen specifically addressed in the final report. Any fund can have a bad period but too many underperform over long periods of time, with the asset manager continuing to take the same level of annual fee. It would have been good to see some measures aimed at fund groups addressing persistently underperforming funds and improving customer outcomes, either by making changes to the funds or moving customers to better-performing options.

The key now is how long the additional consultations take and how quickly the proposed reforms are enforced.

Head of Active Portfolios, AJ Bell Investments

Before joining AJ Bell, Ryan worked as a Fund Manager and Discretionary Portfolio Manager at a leading global investment management firm. Prior to that he was a Senior Fund Manager at one of the UK’s largest investment groups, enjoying a place on both the investment and global asset allocation committees. All in all, Ryan brings more than 15 years’ experience in the investment industry with him to AJ Bell.