I’ve been getting through an awful lot of printer ink recently. With our friends in Canary Wharf embarking on a publication spree this summer, the latest 114 pages to roll off my trusty HP LaserJet finished off yet another cartridge.

We all suspected the asset management sector was in line to receive a regulatory beating. The interim report last November gave more than a few hints at the absence of effective price competition and the investor getting a raw deal from this sector responsible for managing £7trn of our cash.

The final report confirmed this weak price competition, along with very high levels of profitability, variable standards of performance, poor communication to investors and several other blatant failures.

Looking through the proposed remedies, it seems the FCA is serious about tackling this maleficence. Whether they will actually implement this in a timely fashion remains to be seen, with understandable concerns about the lobbying power of such a significant contributor to the UK economy.

But the tide might be turning when it comes to consumer fairness. Within the final report, several specific practices within the asset management sector came in for particular criticism. Perhaps top of the FCA’s naughty list was fund providers operating closet trackers.

The regulator believes £109bn of investor monies is sitting in these funds which broadly track an index, but charge fees for active management. Some have gone as far as labelling this practice ‘fraudulent’. Whatever you decide to call it, investors with cash languishing in these funds are getting ripped off.

Last year the European markets watchdog, ESMA, claimed a sixth of actively managed funds sold in Europe were potentially closet trackers. They asked national regulators to investigate further, which I suspect is one motivation for the FCA directing its ire in this manner. But will they go as far as regulators in Sweden and Norway, naming and shaming specific funds?

Amidst this focus on closet trackers, there’s a danger investors will overlook some other criticised fund practices highlighted in the report. It might be small beans in comparison to closet trackers, but £6bn is held in index tracker funds with charges higher than average actively managed funds. I know it’s not trendy to be critical of any index trackers these days, but unless you’re paying ultra-low fees, these funds are pretty pointless.

I also wonder what action will be taken specifically on pricing and economies of scale. From reading the report, it’s clear that fund providers and investment platforms could both do more to improve life for investors.

We often hear the argument that advisers charging a percentage of assets for advice is ‘bad’, because it doesn’t cost ten times more to give advice on £1m than it does to advise on £100,000. Yet within the fund management and investment platform sectors, the issue is apparent on a scale many times greater.

Why does the annual management charge broadly stay the same when a fund is valued at £100m, £1bn or £10bn? Why are investment platforms failing to use their bulk buying power to negotiate significant discounts for investors, leaving aside the challenges associated with creating new share classes?

It’s unlikely to serve any of us well if the FCA morphs into a heavy handed price regulator as a result of this report. Capitalist market forces should be allowed to do what they do best. But if evidence of cartel-like behaviour and excessive profiteering is found, end investors have the right to expect a robust regulatory response.

Martin Bamford CFP^CM Chartered MCSI FPFS

Chartered Financial Planner & Chartered Wealth Manager
SOLLA Accredited Later Life Adviser
Managing Director, Informed Choice 

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