Blog

What has happened?

In July 2021, the FCA announced that a review of 18 fund managers carried out between July 2020 and May 2021 had identified that most had not implemented Assessments of Value (AoVs) arrangements that met FCA standards.

What do you need to do?

The FCA requires Authorised Fund Managers (AFMs) to carry out an AoV at least annually. This requirement, now contained in the COLL rules, was originally put in place after the Asset Management Market Study found evidence of weak demand-side pressure in the market for authorised funds, resulting in a lack of competition among fund providers on fees and charges. The rules addressed this by requiring firms to assess whether fund fees are justified by the value provided to fund investors, by using a set of minimum considerations. Details of these assessments must be reported to investors, together with a clear explanation of what action has been or will be taken if firms find that the charges paid by investors in the funds are not justified.

The FCA review found that, while some firms had been conducting AoV assessments well, many AFMs often made assumptions that they could not justify, undermining the credibility of their assessments.

When considering a fund’s performance, many firms did not consider what the fund should deliver given its investment policy, investment strategy and fees. Firms spent a disproportionate amount of time looking for savings in administration service charges that cost investors relatively little compared with the time spent reviewing the costs of asset management and distribution that typically cost investors much more.

Other firms did not meet the standards expected by using poorly designed processes that led to incomplete value assessments, for example, by failing to assess elements such as fund performance, AFM costs and classes of units, or by failing to perform assessments at share class level.

Some of the independent directors on the governing bodies or boards of AFMs did not provide the robust challenge expected and appeared to lack sufficient understanding of relevant fund rules.

Overall, the FCA expects more rigour from AFMs when assessing value in funds. It expects all AFMs to consider these findings and use them to assess their AoV processes. Where necessary, they will be expected to make changes to address shortcomings. The FCA intends to review firms again within the next 12 to 18 months and it will assess how well firms have reacted to this feedback. It will consider other regulatory tools should it find firms are not meeting the standards expected.

How can we help you?

If you’d like to know more about how we can help you with your fund manager assessments of value, independent director training or any other regulatory compliance issues, our expert team is here to help

Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.