FCA Asset Management Market Study
Written on 10/08/2018


The FT said this week – “A 2% charge can take quite a chunk out of the overall portfolio return”

If your predicted investment return is (say) inflation +3%, having to earn 2% to pay your investment manager, custodian and adviser, is a big ask.

The average all-in fee charged by the UK’s wealth managers is approximately 2.24 per cent, according to stockbroker Numis Securities.

That's including custody, advice and asset management and it doesn't even include the upfront cost of investing.

It is hardly news to IFAs, but as yields compress, it becomes harder to justify and some IFAs have a lot of work to do.

VIX and the cost of investing

If you are an investor, with the VIX at an all time low, now is probably the best time to sit still and not rack up more fees.

However, as reported before by Ken Baksh of IFAC, the low VIX score could be a negative indicator as well - a known indicator that unknown unknowns are building.
The low-growth investment world we have all become used to.

So it makes sense for us to look at our costs.

If you are paying 2.24% + transaction costs - then you may be losing half of your anticipated return simply trying to get there.

It is a chilling thought.

No matter how uncomfortable, all IFAs have a duty to face the facts no matter what SJP are getting away with.

From an investor’s point of view, switching to MSCI world index hedged ETF at 0.55% pa is attractive.

Go long on IFA asset allocation models, using index trackers underneath.


Unsurprising then that the IFA and DFM market has converged.

DFM’s have got to justify the high DFM fees, so move into IFA.  In turn the IFA side has got to replace their once sacrosanct commission and inducements, so move into DFM.  Carpe diem!

DFM profit margins are, according to the FCA report over 30%. And the FT indicate these numbers increasing as the stock market rises, to closer to 40%.

One thing the FCA report does not mention is the winner takes all feature of fund management.

IFAC believe funds do compete, but in a narrow performance space only.

Go long on IFAs, they will benefit from this change.


It remains astonishing that after 29 years of regulation we still have no single definition of TER, nor disclosure of anything like total expenses.

Including trading (transaction) costs in the quoted fund charge would give consumers a clear idea of the cost of ownership.

MIFID II will already introduce this in January 2018.

Go long on index trackers and low cost tracker ETFs.

Box profits

Shocking that Box Profits are brought to light, and that we IFAs knew so little about this dirty secret inside Fund of Funds collectives.

Easy really – you bundle the buy and sell transaction of a fund together within the same fund and instead of passing the cost saving on to the customer they just help themselves.

Go long on ETFs.


The reality is that fund managers have been running cartel-like behaviour for years and it is time to break it.

I say go DFM yourself, and use profits from one area to subsidise losses in another.

This is the SJP way.

You can this way pay IFAs more than they earn, because they are bringing funds to you.

It is remarkably similar to the Public Schools cartel that nearly sent a half dozen bursars to jail following the 1998 Competition Act. (wiki - here)  Nearly all boys boarding schools had near identical fees.  However in the Girls boarding and the independent day school market – the fees are markedly different.  

The FCA indicate they have uncovered evidence that fund management pricing cartel-like behaviour exists – using fancy terms like clustering.

As a result we are all paying more than we should be for our fund management.

Go short on large DFM.


The Fund Industry may have dropped their prices to platforms and funds no longer kick out commission, but consumers are still paying the same.

How so?

Platforms have become a means to return value to advisers, a commission replacement mechanism.

Go short on platforms, particularly those with conflicts of interest in their governance such as Nucleus.

Go short on Nucleus.

Research shows that Hargreaves Lansdown clients pay about 1.85% pa on average and yet FCA indicate that 51% of them don’t actually if they are paying at all or believe they are paying zero. Go short on HL.


The FCA are convinced that the asset managers are not policing themselves.

They want more directors and more NEDs.

Others argue that we've got to compete post Brexit on the world stage and make Britain asset management friendly, so go easy on the governance!

Performance reporting

The industry does not like benchmarking - comparing performance of one manager against another.

The FCA argue that by making reporting so complicated the industry effectively helps the industry avoid providing relevant data.

You have to pay for the research, and by implication, that is wrong.

The fact that we cannot compare performance of fund managers is, the FCA suggests, part of the reason fund managers have been getting away with it for so long.

Having said all this the FCA seem strangely reticent to do anything about it, and are planning to produce a Consultation paper later this year instead.

The investment consultants aren't doing their job right In Institutional pension space, the FCA reckon that there may be collusion between the investment consultants and fund managers.

They are still to decide what to do about it.

ARK Investments

At the Royal Courts last week (15th June 2017), the members of the various ARK arrangements faced the music.

These victims may be forced to repay loans taken from the scheme. Some face bankruptcy proceedings.

On top of this they will be looking to fund punitive tax bills for having taken the same loans and for transferring their money into unauthorized schemes.

HMRC sanctions can amount to an astonishing 90% of the fund value, by way of tax at 40%, and a further 40% in penalties and late payments.

And HMRC are not known for their sympathy.

The victims transferred from pucka schemes including the BBC, Royal Mail and similar schemes according to Henry Tapper.

What drove them to this madness?

And where are the salesmen who pushed these schemes?

As Henry Tapper point out, with the exception of Leslie Titcombe attending on one day at the Court, the entire pension establishment has ignored what was going on at the Royal Courts of Justice on 15th June 2017.

If we claim to be "pension expert" then we need to guard the good name of pensions. That means sticking up for the way occupational pension schemes work and for the safeguards they provide - including the PPF, and for Personal Pensions invested in boring equities. 

The people who fall victim to ARK and other scams no doubt are guilty too of greed.

But they are not the criminals.

However gullible, they have a point, and in the new IFA world post RDR we have a duty to help.

These people  live next door to us.

It is our job to restore some confidence in in our industry

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