LONDON (Reuters) - British asset managers are using ever more complex charging structures to squeeze higher fees from clients without their knowing, the new financial watchdog said on Monday, outlining a new probe into practices.
In a business plan published on Monday in advance of the Financial Conduct Authority’s formal launch on April 1, the regulator said ‘hidden’ charges in the asset management sector have risen.
“Initial evidence suggests that fund fees are high in the UK compared to comparable markets and charging structures do not promote informed consumer choice,” the regulator said.
It said the practice of managers keeping a cut of fund outperformance had become more common while charging structures had become more complex, making it more difficult for consumers to compare pricing with rivals.
It plans to “highlight the behaviours and practices of asset management firms in relation to charging structures that harm consumers”, the FCA said.
The new body will replace the Financial Services Authority, as Britain’s government ends a policy of “light-touch” supervision that failed to avert the 2007-09 financial crisis.
According to Lipper, a Thomson Reuters company that tracks the funds industry, investors in an actively managed fund in the UK will typically pay around 1.7 percent per year in fees.
Investors in Europe can pay more, up to around 2 percent, though an investor in Germany will pay less, around 1.5 percent per year, while in the United States annual charges are likely to be as low as 1.3 percent, according to Lipper.
Fund managers have found themselves under mounting scrutiny in recent months as the public and regulatory backlash since the 2008 financial crisis spreads beyond the banking industry.
European lawmakers are seeking tighter control of fund managers’ pay while UK regulators have already moved to scrap commission-based selling of financial products.
Editing by Patrick Graham