Duncan Mavin is a former Bloomberg Gadfly columnist.

Upset that the leap year means you're working an extra day for free this February? Spare a thought for the U.K.'s $10 trillion asset management industry, which is facing something far rarer and a lot costlier.

Back to Earth
Source: Bloomberg

Fund managers are still trying to get their heads around the potential fallout from a review of the industry opened by the U.K.'s financial regulator. Back in November, the Financial Conduct Authority said it would scrutinize competition and how costs are passed on to clients in particular.

That's a threat to the historically high fees British fund managers have enjoyed. U.K. mutual funds charge are more than twice those of their U.S. counterparts, according to research published by the Review of Financial Studies as far back as 2009. 

So far, all the review has created is work and major unknowns for the industry.

Take Monday's fourth-quarter earnings from Jupiter Fund Management. CEO Maarten Slendebroek told analysts the company has launched an internal task-force assisted by a professional advisory firm to deal with the FCA study. They've been gathering data and don't expect much feedback from the regulator until mid-summer at least.

Mostly, though, Slendebroek signaled that there's a great deal of uncertainty around the study, which, he said, may be the first of its kind anywhere. Management "don't know what is coming out the other end," he said.

Mutual Benefits
Jupiter's biggest source of assets under management are mutual funds
Source: company filings

Citigroup analyst Haley Tam noted that the FCA attention is "a potential threat to industry retail fee margins" -- that's especially worrisome for companies, like Jupiter, whose client base includes a significant proportion of individual investors. Almost 90 percent of the company's 35.7 billion pounds ($49 billion) of assets are mutual funds.

Jupiter has maintained impressive margins in recent years -- its Ebitda margin has declined over the past few years, but only just and so far stayed stubbornly higher than 50 percent.

Steady State
Jupiter's profitability has held firm in recent years -- but regulation could squeeze margins.
Source: company filings
Annual Ebitda margin forJupiter

Keeping that up could get tougher if the FCA study introduces greater pricing pressure, or forces asset managers to absorb more of their own costs rather than passing them on to clients.

But the recommendations of the study might not be the most upsetting outcome for the industry.

As Jupiter's leadership indicated, there's major work to be done when you're under the regulator's glare. Senior executives at big asset managers are irked by the challenge of filling reams of documents and providing mounds of data to the U.K. regulator, even as professional advisers, lawyers and accountants are rubbing their hands at the potential fees. European regulators are also piling in, requiring additional data gathering and documentation rules.

Even before the FCA reaches any conclusions, the cost of compliance is significant and the effort required is a burden on resources, including management time that would otherwise be spent dealing with more commercial issues. The banking sector knows this well.

Now it is the turn of asset managers. With other major issues looming -- the Brexit referendum and heightened market volatility, especially -- fund managers may have piqued the regulator's interest at just the wrong time.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Duncan Mavin in London at

To contact the editor responsible for this story:
Edward Evans at