The ongoing costs to customers investing in UK funds is expected to rise as managers get to grips with new requirements to hire independent board directors and spend more time assessing value for money for clients.
In figures compiled by the FCA itself, fund managers look set to absorb a one-off cost of £6.7m ($8.6m, €7.6m) to prepare for the changes, with £4.8m of the figure set aside to hire new directors.
However, fund investors could face costs across the industry rising by nearly £30m a year.
The FCA anticipates the annual cost of paying for the independent directors each year to be £26.9m and the cost of extra work for fund managers to assess value for money to sit at £813,000.
Costs passed on
In its consultation on implementing the remedies listed in the asset management market study published Wednesday, the FCA said: “Fund managers will incur ongoing costs for remunerating independent directors and for other miscellaneous staff time needed to support the independent directors in their posts.
“We are assuming that all such costs will be passed on by the fund managers to fund investors.”
Investors viewed the decision as counter-intuitive to the regulator’s talk of lowering costs.
Magic money tree
Ben Yearsley, director at Shore Financial Planning, said: “I do not see how you can load costs on fund managers and then expect them to lower fees. We have got that magic money tree again.
“Having independent board members is perfectly logical, two additional board members is not huge but for smaller fund groups that will be a problem. It’s a much more disproportionate effect on margins.”
All talk, no action
AJ Bell’s head of fund selection Ryan Hughes noted that fund charges had not come down drastically since the implementation of RDR and suggested the regulator may have to take more action to force costs down.
He said: “The FCA has talked a lot about it wanting costs to come down but there is nothing in the proposal today or in November to force costs down. It seems it’s words without concrete actions.
“The onus is on the industry but the industry does not have a good track record of passing on savings when they are not forced to.”
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