British regulators say that investment funds need to do a better job of clearly disclosing fees and charges to investors.
In the wake of a review of how fund firms disclose their costs to prospective investors, the UK’s Financial Conduct Authority (FCA) stresses that firms must reveal their fund charges clearly and consistently “so that retail investors are able to compare charges before making decisions on where to invest.”
The FCA says that its review aims to examine how firms communicate their charges to investor, “given the importance of investors understanding and comparing charges as they contribute to fund returns along with performance and the level of risk.”
The regulator says, “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, 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 FCA says that its review found examples of firms who provide a consistent, comprehensive charge across all relevant documents and platforms; but it also found firms that make effective comparisons difficult by disclosing different charges across multiple 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,” said FCA director of supervision, Clive Adamson. “We are therefore today encouraging all firms to respond to our findings and adopt the clarity and consistency we believe to be important.”
The FCA says that it will follow up this work with firms through its routine supervision and work with the Investment Management Association (IMA), which has issued voluntary guidance to the industry on the disclosure of charges and costs.