Why you need to improve your asset management investor communications

Laptop ReportEarlier this month, the FCA released the latest outputs from its Asset Management Market Study. This second set of rules aim ‘to improve the quality of the information available to consumers about the funds they invest in’.

What are the new rules, and how will they impact your marketing?

What is the FCA’s Asset Management Market Study?

The regulator carried out an investigation into the UK’s asset management industry in 2015-16. An interim report on the findings was published in November 2016, with the final report published in June 2017.

The study set out a number of areas for improvement in the sector. It found:

  • That price competition was weak in a number of areas
  • That investors are not always clear on the objectives of funds
  • That fund performance is not always reported against an appropriate benchmark
  • Concerns about the way the investment consultant market operates

What has the FCA done as a result of the findings?

The Authority has taken several steps to tackle the issues it found in its research. The rules and guidance released this month focus on marketing materials and communications.

The changes aim to help ‘consumers understand more about how their money is being managed, so that they can make better investment decisions’.

New rules and guidance on asset management financial promotions

If you produce financial promotions in the asset management sector, what do the changes mean?

  • You must make fund objectives and investment policy descriptions more useful to investors
  • You must explain how and why funds use particular benchmarks
  • If your funds don’t use benchmarks, you are expected to explain how investors should assess that fund's performance
  • If you do use benchmarks, you need to reference them consistently across the fund’s documents
  • If you present a fund’s past performance, this needs to be shown against each benchmark you use as a constraint on portfolio construction or as a performance target
  • You must clarify that where a performance fee is specified in the prospectus, it is calculated based on the scheme’s performance after the deduction of all other fees

The study says that "We expect fund managers to explain what their funds are doing in consumer-friendly language”.

The new rules are designed to make decision-making easier for all investors, with a particular focus on those who are perhaps more vulnerable. Launching them, Christopher Woolard of the FCA said that: ‘We’re working to make competition work better in the asset management market and protect those least able to actively engage with their investments’.

Part of a wider picture

These new rules form part of a wider push for transparency and clarity by the FCA.

The regulator is keen that all marketing communications meet its requirements on suitability and are fair, clear and not misleading.

In November last year, the Cost Transparency Initiative was launched – an independent group designed to improve cost transparency for institutional investors. As part of the CTI’s work, it’s developing standardised disclosure templates for institutional investors; this was one of the FCA’s desired outcomes from the Asset Management Market Study.

Next steps for Marketing Managers

If you market asset management funds, you need to comply with the new rules and guidance outlined above.

The full rules and guidance are on the FCA website – your Compliance colleagues should be familiarising themselves with the detail of the requirements.

To put this into practice, you need to make sure your communications follow the rules on fund descriptions, benchmarks, performance and fees.

You also need – of course – to ensure all financial promotions follow a compliant review and approval process that creates an FCA-approved audit trail.

If you would appreciate a refresher on financial promotions compliance, you can download a copy of our free Financial Promotions Checklist for Marketing. The checklist covers off the five key stages in producing a compliant FP, and you can get a copy here.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document. New Call-to-action