The UK Financial Conduct Authority (FCA) published its final Report on its asset management market study yesterday. Key findings include:

  • Asset management – the report finds evidence of weak price competition and recommends a number of remedial strategies, including improved transparency and an extension of the senior managers’ regime. However, the FCA has rejected the idea of introducing a statutory fiduciary duty towards investors for asset managers.
  •  Pensions – the report finds that the financial services industry has provided poor value to many investors, particularly smaller pension plans. As a result of its finding that some smaller plans have been unable to secure fair terms from managers, the FCA intends to work with the Department for Work and Pensions to remove barriers to pooling but does not recommend making pooling of assets mandatory.
  • Investment consulting – the FCA is consulting on a recommendation that the Treasury extends its remit to cover strategic investment advice. The FCA is also consulting on whether to conduct a separate market study into investment consultants, having provisionally rejected the undertakings in lieu offered by the three largest consultants.

The report highlights the need for pension plan trustees, as major customers of asset managers, to use their bargaining power effectively.

This is consistent with recent guidance published by the Pensions Regulator, which emphasises the importance of reviewing and negotiating fund documents and contractual arrangements in place with managers and advisers.

Asset management industry

The FCA has found weak price competition in the asset management industry, with both active and passive management offering poor value for money.


The FCA proposes to strengthen the duty on fund managers to act in the best interests of investors through a number of governance measures, including increasing accountability through the senior managers’ regime with a new responsibility for senior managers to act in the best interests of investors. These are not common provisions in investment documentation.

However, the FCA has rejected the idea of introducing a blanket statutory fiduciary duty for asset managers. Pension plan trustees should therefore continue to consider, as part of contract negotiations, whether to require their asset managers to commit to a fiduciary standard of conduct.


The FCA supports consistent disclosure of costs and charges to institutional investors. The report notes that there are currently a number of competing templates, including those prepared by the Local Government Pension Scheme, the Investment Association and the Transparency Task Force.  The FCA proposes to ask an independent chair to work with the various parties to agree a single reporting template.

The report notes that the agreed template should not be considered as a maximum reporting template.  The FCA will expect asset managers to comply with requests for further information in “a timely manner”.

Further work

The FCA is planning a further market study into investment platforms, which appears to be largely focused on the retail sector.  Further consultations will also take place on costs and charges disclosure to retail investors, benchmarks and performance reporting and convening a working group on objectives.

Pension plans

The FCA has found that, in many cases, pension plans are unable to negotiate effectively with asset managers.  However, the report notes that some pension plan trustees – of both large and small plans – have been successful in securing good outcomes for their members.


The FCA is recommending that the Department for Work and Pensions removes barriers to pension plan consolidation and pooling, but is not recommending that pooling be mandatory.

The report identifies a number of barriers to pooling, including technical barriers such as complex benefit structures and balance of power provisions in pension plan rules as well as practical barriers such as different liability profiles and funding ratios. The FCA correctly notes that removal of some of the barriers it has identified would require legislative change.

The report notes that further work is required to assess the relative benefits and drawbacks of mergers, shared governance, co investment vehicles and pooling arrangements.


The Pensions Act 2014 will require reporting of transaction costs to members of defined contribution plans. This obligation may be extended to members of defined benefit plans.

However, the FCA does not propose to recommend the introduction of any further requirement for trustees to report to pension plan members on fees. It notes that such a requirement may have unintended consequences, such as discouraging asset managers from offering discounted fees.

Investment decision making

The report finds that some trustee boards have focused heavily on decisions such as manager selection, at the expense of more important decisions such asset allocation. The FCA supports the guidance issued by the Pensions Regulator that recommends a hierarchy of investment decisions, with priority being given to those decisions which will have the greatest impact on performance.

Investment consultants

The report highlights a number of concerns relating to the investment consulting industry, including high levels of concentration in the market, high barriers to entry and vertically integrated business models.

The FCA is therefore consulting on a recommendation that the Treasury extends the regulatory perimeter to cover strategic investment advice. The report notes that a majority of respondents supported this.

The FCA is also consulting whether to conduct a separate market study into investment consultants, having provisionally rejected undertakings in lieu offered by the three largest consultants. It will make a final recommendation in September 2017.