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Communicating with Investors: Do’s & Don’ts for Asset Managers

7th April 2016

FCA Review of Asset Managers: How do they measure up?

Today the FCA issued their findings on a Thematic Review (TR16/3) that considers how firms measure up with regards to how they manage funds and segregate mandates.

According to the FCA, the fund industry in the UK manages over £6 trillion of assets - with firms within this sector managing over £800 billion of UK domiciled funds on behalf of institutional and retail investors. Thus asset managers are crucial in delivering financial investment services to customers and are worthy recipient of close regulatory scrutiny and attention.

Asset Management Review

Following on from the FCA’s Business Plan last year, the regulator has today published their thematic review that compares investor expectations to the reality of how UK authorised investment funds and segregated mandates are actually operated and assessed against the FCA rules. In addition the FCA also looked at how firms monitor their distribution of funds appropriately.

It should be noted that the decision on whether an investor decides to invest in an authorised investment fund or not will be based upon the communications received from firm – most notably the contents of the marketing, investment mandates and disclosures materials that are made available to them.

Thus, the FCA notes that these types of communications with investors are incredibly important and must be both “accurate and clear”.

Action for Fund Management Firms

Whilst most fund managers within the review were found to be treading the correct path to “ensure they manage funds as they say they will” and that the funds were investing in accordance with their stated strategies, there were examples of inadequate oversight and governance along with unclear product descriptions.

In line with the regulator's focus upon benchmark regulation for the forthcoming financial year, the regulator also stressed the need for the industry to consider how it communicates “when funds are linked to financial benchmarks”.

Dos and Don’ts for Asset Managers:

In order to communicate clearly with investors and operate effectively, Asset Managers should take note of the following tips from the thematic review:

• Do provide a thorough explanation of your investment strategy
• Do provide specific information about the aims and asset allocation of the fund
• Do ensure that product descriptions are current, clear and correct
• Do have appropriate oversight to make sure the fund is being managed in accordance with its stated investment policy for both actively and non-actively marketed funds
• Do monitor distribution channels to identify trends that may indicate inappropriate sales
• Don’t fail to disclose a constrained investment strategy
• Don’t include jargon that ordinary investors would be unlikely to understand

As a result of the Asset Management Study the regulator advises that all fund management firms should review their own arrangements in consideration of findings of TR 16/3.

Asset Management Study – What Next?

Regulatory Focus upon the Asset Management Industry continues as the Regulator continues with its Asset Management Market Study, with the aim of this study to understand whether competition is working effectively to enable investors to get ‘value for money’ when they purchase asset management services. The FCA published the Terms of Reference for this study (MS 15/2.1) towards the end of last year (in November 2015), and advises that it expects to publish an interim report this summer and the final report in early 2017.

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.