The Financial Conduct Authority told asset managers today that it will launch a consultation paper in November to address investment research costs. Last year, fund managers in the U.K. spent £3 billion under “research costs”, according to The Telegraph. On Monday, Financial News reported that the Financial Conduct Authority chief Martin Wheatley will address the issue at the FCA Asset Management Conference today.
The regulator criticized the way investment research is paid for and how fund managers spend dealing commissions. Wheatley said that the Authority is concerned that asset managers have “stretched the rules.” Fund managers have classified the “non-eligible costs and services” as research, so they use client commissions to cover those costs.
In November, the regulator will clarify rules on research, and conduct a review of how research costs are worked out in asset management industry. FCA said that its action won’t be a full-fledged crackdown, but a genuine attempt to bring transparency. The watchdog also plans to address the corporate access issues.
Today, investment research services are bundled together. So, the non-eligible and eligible services have become difficult to separate. Financial Conduct Authority said that fund managers are using client commissions to fund corporate access. The regulator estimates that more than £500 million of client money was used in 2012 to gain corporate access. The Financial Conduct Authority says that asset managers should pay for corporate access from their own pockets instead of using client money.
Financial Conduct Authority’s bold move comes after the Financial Times reported that some consultants and brokers charge fund managers “$20,000 an hour” to meet their CEOs. These costs are passed on to investors.
In another development, the British government launched a consultation to limit the pension company charges. Lobby groups and media outlets had been putting pressure on the government since 2011. It will save workers thousands of pounds.
