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The first value assessment reports are out – how is the industry doing so far?

by Dawn Hyams, Head of Investor Insight and Governance

It was Andrew Bailey, now heading the Bank of England but formerly CEO at the FCA, who said “The effectiveness of communication with consumers is…a test of culture”.

The FCA’s request that fund management firms assess the value that they are delivering to investors in their funds has given rise to a flurry of activity across the industry. Combined with the arrival of iNEDs on fund boards and the fact that the assessment of value is called out as a formal responsibility under the Senior Managers’ regime, firms should be (and from what we can see many are) treating this as more than just a box-ticking exercise. In fact, from our perspective, conversations around delivery of value are prompting interesting and often challenging debates on value (and values), as well as the longer-term shape of the fund industry.

It would seem from the FCA’s recent ‘Dear CEO letter’ to fund boards, however, that they feel the need to reiterate the importance of the thought process behind the report – and expect to see evidence of challenge from the iNEDs.

It is certainly true that there are still some ‘pockets of resistance’, reluctant to embrace the cultural change that the FCA is calling for. Firms are also tackling value assessment in something of a vacuum – so it is reasonably difficult to get a handle on what ‘good’ looks like, given that there is no set format for reporting or the process behind it and that any guidance that has come from the FCA is open to interpretation. We keep coming back to the fact that this requirement fell out of the Asset Management Market Study and was prompted by the FCA’s view that too many funds were charging too much money for delivering close to benchmark performance to customers. The aim was to ‘out’ closet trackers and their close relations (again, a timely reminder on this in the FCA’s letter). The flipside, is that this can be seen as an opportunity for active managers to set out their stall and demonstrate the value they are adding.

Our observations so far on what good looks like…

Firms that are doing this well have genuinely considered customers as part of the process:

  • What do customers value?
  • What do customers understand about the fees they pay and what they get in return?
  • Is there a robust process behind the report to customers?
  • What was the quality of internal debate and how involved were the NEDs?
  • Do they understand your value assessment reporting?
  • Were the NEDs given enough information and time to be able to challenge the process effectively?
  • What are the remedial actions falling out of the process and how do these impact customers and their advisers?
  • How do you talk to customers about value assessment in a way that is meaningful to them?

Some of the reports that have been issued so far have completely missed the mark in our view – jargon-filled and with little context or explanation that will help customers understand why they should even pick up the report or care about what is inside. Will the FCA be more concerned with the internal process and debate? Yes, of course. For us, it comes back to whether or not the way you talk to your customers is a reflection of your culture. How seriously have you taken this process if you can’t even be bothered to report to customers in a language they understand?

Get in touch to find out how.