FCA reviews how fund charges are set out

14 May 2014 05:14 PM

The Financial Conduct Authority (FCA) publishes the findings from its review of how fund charges are presented 

Firms must present their fund charges clearly and consistently, the Financial Conduct Authority (FCA) said this week, so that retail investors are able to compare charges before making decisions on where to invest. The recommendation follows a review of the marketing information made available to UK retail consumers by 11 firms.

The FCA found examples of firms who provided their customers a consistent, combined charge figure across all relevant documents and platforms, but said there were still examples of firms referring to different charge figures across multiple documents, making effective comparisons difficult.

FCA director of supervision, Clive Adamson, said:
“We have found examples of good practice being exhibited by firms in providing clear and consistent description of fund charges across different marketing documents.

We believe that it is important for investors to clearly understand and compare charges across the market as this, together with fund performance and risk profile, are the key areas that they should look at.

We are therefore encouraging all firms to respond to our findings and adopt the clarity and consistency we believe to be important.”

Given the importance of investors understanding and comparing charges as they contribute to fund returns along with performance and the level of risk, the FCA wanted to examine how firms communicated their charges.

Consumers are likely to find it easier to understand and compare charges if all firms involved in providing funds to investors consistently use one combined charges figure, such as the ongoing charges figure for certain funds (UCITS), in all documents. Using the annual management charge in some marketing material and a combined figure in other documents may confuse investors and hinder comparing charges.

The review found examples of good practice, where firms:

• presented the same summary charges figure on its website and fund documents, making it easier for investors to understand and compare them
• designed all marketing material for retail customers to avoid the risk of retail investors being confused by documents meant for finance professionals
• used questionnaires to develop material that helped investors to understand funds and charges

However, the FCA also found:

• some firms did not provide investors with a clear, combined figure for charges in their marketing material or on websites
• examples of poor descriptions of administration charges that did not accurately reflect the operation of the charge

The FCA has a statutory objective to secure appropriate protection for consumers and expects firms to communicate with investors in a way that is clear, fair and not misleading. It will follow up this work with firms through its routine supervision and work with the Investment Management Association (IMA) who have issued voluntary guidance to the industry on the disclosure of charges and costs.

Notes for editors

1. The review. The FCA has investigated how clearly funds are set out to investors, and reviewed disclosure documents for up to three funds at each of the 11 funds in the sample. The FCA asked firms to explain what they considered when setting up their charging structures and designing how charges information is presented to investors.
2. The FCA is responsible for regulating investment schemes, known as UCITS (Undertakings for Collective Investment Securities) in the UK. More information on UCITS can be found on the FCA website.  
3. On the 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
5. Find out more information about the FCA.