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'A critical period': Martin Wheatley's speech on fund charge conflicts
on Oct 30, 2013 at 11:25
We’ve seen a dramatic change in the way the sector has performed as a profit centre, becoming a driving component of the UK’s economy. The sector has gone from managing funds equivalent to 1% of GDP in 1960 to 40% of GDP in 2010. UK fund managers were responsible for a record £5.4 trillion in funds at the end of 2012, up 6.5% on the previous year. Even through the 2008 financial crisis, the health and performance of the sector remained strong. You know all this.
You also know that the sector hasn’t just achieved this status by sheer coincidence. The sector has achieved this by its ability to innovate, change and adapt to the new global environment.
Significantly, much of this growth has taken place during a period shaped and defined by international efforts to build public trust, confidence and quality of service. We know from recent studies that the prime determinant of investor satisfaction remains quality of service.
If investors develop fears over charging, or lose confidence in asset management firms, they can and will look for solutions elsewhere. In the UK, North America, Europe, the Middle East, and Asia, strides have been taken to help ensure the industry provides value for money, and is also open-handed and transparent in supporting clients.
We differ from the asset management sectors in other countries, as nearly 50% of clients in UK asset management are made of pension and insurance funds. This places a greater onus on us to remember where the money originates, and never forget that the sector must always act as agents of clients.
So we have to ask: has all of this change been to the benefit of customers? Has the purpose of an asset manager to offer a transparent balance of risk and reward changed? Is there more that we can do to compete for investors based on enhanced customer-focus?
Emerging challenges in the sector
These kinds of direct challenges led us to take a long, hard look at how the sector is currently operating and where the reputation of the sector could be strengthened. Primarily by focusing on how dealing commission is being used and if transparency could be improved, if value for money for customers could be improved.
Ongoing issues around transparency in this sector are nothing new. In 2003 the FSA looked at the array of services that could be supplied to asset managers by brokers in return for clients’ dealing commission.
The FSA found commission was being used in a way that gave rise to significant conflicts of interest by influencing where asset managers directed trades. There were also concerns over accountability to clients and how their commissions were effectively being spent.
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