Photographer: Chris Ratcliffe/Bloomberg

Asset Managers Unlikely Winners as FCA Targets Consultants

Updated on
  • Report seeks to boost competition in $9 trillion U.K. industry
  • Pension consultants and platforms may bear heaviest burden

Asset managers including Schroders Plc and Jupiter Fund Management Plc are getting off lightly in a regulatory overhaul of Britain’s 7 trillion-pound ($9 trillion) industry, analysts say.

While the Financial Conduct Authority’s backing for an all-in-fee was a blow for asset managers, the proposals in its report last week are less onerous than some had feared. Rather it’s investment consultants and hedge funds that could bear the burden of the potential changes.

“While the tone of the report is negative, it is largely as anticipated,” said Peter Lenardos, an analyst at RBC Capital Markets in London. “You would have thought it would have made a lot more damning indictments, but it didn’t.”

Below is a breakdown of which parts of the industry are likely to be hurt most by the recommended changes and which could benefit.

WINNERS

  • Asset managers: Shares of Jupiter, Schroders and Aberdeen Asset Management Plc rose on June 28 as traders concluded the FCA proposals were largely in line with what had been flagged in its interim report in November. Firms that have already starting making changes will have the edge over competitors, according to EY partner Simon Turner. The FCA’s use of relatively soft language on fees “is supportive,” said Cantor Fitzgerald LP’s Keith Baird.
  • Investors: Given that the FCA is looking to boost competition and cut costs in the asset-management industry, it was almost inevitable that customers would benefit from the recommendations. From individual punters to pensions funds overseeing billions of pounds, FCA Chief Executive Officer Andrew Bailey said he expects to see lower fees across the board.
  • The government: One of the aims of the overhaul is to encourage long-term savings, which if successful will ultimately reduce reliance on the public purse, said EY’s Turner.

LOSERS

  • Asset managers: While money managers emerged relatively unscathed from the FCA’s review, there is a price to pay. Regulatory costs will rise. And the FCA is still considering whether it should force money managers to return to the fund any so-called box profits, which are generated from the spread between bid and offer prices. The rule change could cost asset managers at least 20 million pounds a year, the FCA estimates. Schroders and Jupiter are among firms to have got rid of box profits.
  • Investment consultants: The gatekeepers of more than 3 trillion pounds of mostly pension-fund money could be among the hardest hit after the FCA rejected lobbying from Willis Towers Watson Plc, Aon Plc and Mercer -- which between them have more than half the market tied up -- saying it may still refer the industry to the Competition and Markets Authority. Referral is “inevitable,” said KPMG head of investment advisory Nick Evans. The FCA also cited conflicts of interest, opaque fees and market concentration and flagged concerns about fiduciary management, suggesting more formal action may follow.
  • Investment platforms: Hargreaves Lansdown Plc has fallen more than 5 percent since the FCA confirmed plans for a market study of the industry.
  • Alternative asset managers: Hedge funds and private-equity firms may see further regulatory scrutiny after the FCA report cited “often unclear” fee information. Mary Starks, the organization’s chief economist and director of competition, told reporters in London last week that the hedge-fund industry was “on the radar” of the regulator. “I can’t see why private equity and hedge funds should be under review,” said Peter Astleford, a partner at law firm Dechert LLP. “It just seems ill conceived.”

— With assistance by Nishant Kumar

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