FCA: Managers 'undermine' value assessment process by basing fees off competitors
'It is vital that firms make sure they are not solely focused on a fund’s profitability over value for money for investors.'
In its review of processes of assessments of value the FCA said managers have a «better understanding» of the rules compared to last year's review, and found they have «significantly improved» their value assessment processes.
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More specifically, the 14-firm wide review between November 2022 and March 2023 found that most companies make fewer assumptions within their analyses that they cannot evidence as reasonable, and present higher quality information to their boards and assessment of value committees.
This relates to the regulator's expectations that managers «substantiate any claims they make», it said.
One of the biggest issues the FCA discovered revolved around the ways managers justify fees for their funds. The regulator said most firms put «too much emphasis» on comparable market rates rather than conducting reviews and using «the full range of value assessment considerations».
The FCA found that some firms did not use fund-level profitability information to inform their assessments, despite having «well-developed cost analysis».
Comparable market rates were also still being used to «override» one or more of the value assessment minimum considerations, the FCA said. More specifically, when those considerations showed evidence that a fund's fees may not be justified, managers switched to assessing comparable market rates to justify their current fees.
Furthermore, some companies said they would consider cutting a fund's fees only if they were out of line with their competitors — a stance that the FCA noted is a
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