Just two months ago, the Investment Association, the British association of asset managers, published a study according to which there were no hidden fees for funds. Consumer advocates had previously accused the industry of burdening the fund's assets with innumerable costs and charges.
As early as November last year, the Financial Conduct Authority (FCA) had begun evaluating the price structures and the results of investment funds. In an interim report, the FCA identifies that deficient competition leads to inflated prices in active management. Investors would pay fees that can not be justified with the fund's performance.
Also, the FCA notes that the investment objectives are not defined clear enough, and comparative indices are not always used correctly. Despite the many providers on the market, the prices are surprisingly close together, according to the FCA, which would lead to high profits in the industry.
The FCA also finds weaknesses in investment advice. Managers would not be selected and promoted on the basis of their achieved results.
The regulator now demands that fees and costs are broken down and presented transparently, for example by an "all-in fee". Besides, investment objectives should be communicated clearly and comparable indices to evaluate the managers' performance should be used appropriately.