FCA Crackdown on Expensive Funds

It's estimated that investors will collectively be £1 billion better off after the FCA (Financial Conduct Authority) ordered asset managers to move investors to the cheapest possible share class of their fund.

A third of investor money is invested in old "dirty" share classes according to Fitz Partners, a research provider. Investors could be paying £1 billion a year more than they should be based on an estimated over-payment of 0.5% per fund.

The decision comes on the heels of the proposals presented by the FCA in late 2016, specifying that investors should be able to move easily between funds and out of poorly performing portfolios.

FCA representative Christopher Woolard says that "The investment choices open to people, and the decisions they make on how to invest, can have a profound impact on their financial health. That’s why it is important the asset management industry is working as well as possible."

The need to charge different amounts for the same funds led to asset managers offering different classes with different charges for each.

Regulations implemented previously that led to "clean" share classes becoming the new standard, did nothing to help those that were still in old style share classes, leaving them exposed to higher fees.

It can be difficult to switch share classes for investors that hold fund directly with the asset manager.

Asset managers will now be forced to change investors into the cheapest possible version of a fund or move investments to an online platform according to Mike Barrett of the Langcat:

“I think most of the managers have been looking at this for quite a while, and the regulator has said they don’t need to get authorisation from investors – so I would expect them to get on with it fairly rapidly,”

It's important to keep up to date with the latest on your investments, including whether they are still appropriate for your current goals and objectives and whether you are taking full advantage of the tax wrappers that are available to you.

Westminster Wealth Management can assist in helping you to navigate your financial future, and expert advice is valuable in complicated times just as much as in simple ones. Contact us today.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.

Past performance is not a reliable indicator of future performance.