Fund Management Firms: Thematic Review

Of Relevance to:
Fund Management Firms; Financial Advisers; Platform Providers

Fund Management Firms: Thematic Review

The FCA has carried out a thematic review on UK fund management firms and has published its findings in TR16/3 – “Meeting investors’ expectations”.

The review looked at 19 fund management firms which, between them, were responsible for 23 UCITS funds with a total value of £50bn and four (institutional) segregated accounts.

Overall, the review found that fund management firms were “taking the right steps” to meet investors’ expectations and complying with their responsibilities towards investors. Having said that, there were some observations.

• Clarity of product descriptions. Seven of the 23 funds’ key investor information documents were deemed not to have sufficiently clear descriptions of how they were managed. Particular mention was made of three funds which were tied to a benchmark which was not adequately disclosed. Most firms were assessed as adequately disclosing the key risks in their funds, although there were two funds where it was felt that the disclosure fell short.
• Adequate oversight. There was a concern that there were issues with all of the four funds in the sample that were no longer being actively marketed, which suggested that firms do not provide the same attention to such funds as they do for recently launched products.
• Appropriate distribution. Most firms (although only 10 firms out of the sample population were reviewed for this part of the thematic) were monitoring sales which would identify trends that could indicate inappropriate sales. Notwithstanding this, the review found that two funds which were designed to be only available with advice were available on execution-only platforms.

In addition the paper includes examples of good practice (e.g. end-customer testing to assess retail investors’ understanding of fund documentation; training financial advisers about a complex fund and then testing their understanding) and a lesser number of examples of poor practice (e.g. a fund clearly labelled ‘for professional investors only’ being made available to retail investors on the fund management firm’s homepage).

There were no issues identified with regard to the segregated accounts. The paper reports, as might be expected given their institutional nature, that the mandates were closely overseen by the knowledgeable clients through both regular meetings and reports. It seems that for this reason the FCA thematic team decided not assess a larger number of segregated accounts.

Although the review concentrated on UCITS, it concludes with a reminder that “all fund management firms should consider the findings in this paper and review their arrangements accordingly”. It is worth noting the final sentence in the paper: “we will follow up on this work through our routine supervision”.

Key dates

There are no key dates in the paper but it is recommended that relevant firms impose their own deadline for reviewing their arrangements in the light of the findings.