Financial Conduct Authority chief executive Martin Wheatley has called for greater transparency in the UK asset management sector. Wheatley said that the value of funds managed by the sector has increased from 1% of GDP in 1960 to 40% of GDP in 2010, with UK fund managers responsible for £5.4 trillion in funds at the end of 2012. Nearly 50% of the UK asset management sector’s clients are pension and insurance funds.
Since 2006, regulations have been in place to try to stop conflicts of interest when asset managers directed trades to brokers and receive research and other services in return. However, Wheatley said: “Since 2006, supervisors have increasingly come across evidence that the current regime does not sufficiently enhance transparency and accountability. There are two persistent problems. Firstly, services are being “bundled” together, with eligible and non-eligible services being mixed. Secondly, when this information is provided back to the client, there is a lack of clarity or adequate transparency around how their commissions have been spent”.
Wheatley gave as an example of poor practice, asset managers paying large chunks of client commissions for “corporate access” services from investment banks and brokers. He added that up to £500 million could have been spent on corporate access in 2012 and said this practice transfers costs onto the client, against their interests. “These costs are indirectly borne by the client and do not affect the manager’s profits. Likewise, on the other side of the transaction, chief executives and investor relations officers have learned, sometimes to their surprise, that their time is being billed to the industry by brokers.” Wheatley concluded: “This is a critical period for the industry; a crossroads. So today we ask some challenging questions. Are we internationally competitive? Are charges and fees transparent? Are there inherent conflicts within the system? Today we start a debate.”