UK’s FCA: “Significant issues” remain in asset management cost calculations

By Rebekah Tunstead | 28 February 2019

Significant issues remain in the disclosure of cost calculations within asset management, according to Nick Miller, head of asset management supervision, at the UK’s Financial Conduct Authority (FCA), at an industry event this week in London.

On Thursday, the FCA called on firms to act following a review of costs and charges disclosure in the investment sector.

The FCA also published a review of the disclosure of costs by asset managers, was to assess the effectiveness of disclosure by asset managers and intermediaries, such as wealth managers, to their retail customers.

 “We think there are some quite significant problems in the sense that there are a lot of calculations errors being made, which we think are just straight forward errors. We want to see those improve, we want see discipline against those please, and also ensuring where you are disclosing costs and charges, that you are doing so consistently,” said Miller, during a keynote session.

“So, for example, your costs as disclosed in your regulatory documents are comparable and are consistent with other disclosures made around costs,” he said.

According to the FCA review, there were “problems with the way some asset managers calculate transaction costs and how prominently they disclose them.

The review continues: “the FCA also found that asset managers generally do not disclose all associated costs and charges and where full disclosures are made inconsistencies between documents and website mean consumers can find the information difficult to understand.”

At a later panel discussion, Adrian Clark, head of business risk and governance at RBC Global Asset Management, said that cost calculations are “hugely complicated” and “open to interpretation.”

 “Your explicit costs were relatively simple, your implicit costs were much more difficult to calculate, it is a different methodology of calculation,” said Clark.

“One of the things we saw across the industry was a lot of people with their costs & charges, coming up with negative implicit costs.

“A lot of asset management firms are saying, ‘this is a problem with what you are asking us to give. The cost in implementation from shortfall is at least partially random, on the market moves.’ And the FCA saying, ‘well actually it’s fine on the case of some of these, but most of these are because you got the calculation wrong.’”

Jeff Willems, business development for EMEA at CSS, added that there is confusion by firms around how they should interpret the FCA’s guidance.

“I think some firms knew that the figures didn’t make sense, but it kind of helped because then people were able to say, ‘look you gave us a procedure, and this is what you get. If you are not happy with it, explain to us exactly what we should be doing,” said Willems.

“But then there were also data quality issues on the other hand, particularly when you look at the huge costs. I think there was purely data management issues, and also misunderstanding of how to populate the template. The meaning of putting a zero somewhere, or point 99, that mean something in the specifications but something completely different on the front of it,” he said.

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