A clear majority of fund managers have not delivered an adequate value for money assessment that reveals how their funds stack up against fees charged, the Financial Conduct Authority revealed today (6 July).

The UK regulator reviewed 18 approved fund managers (AFMs) between July 2020 and May 2021, covering different business models and sizes, to monitor a new requirement to carry out an assessment of value (AoV) at least annually.

This measure was put in place after the FCA's Asset Management Market Study found evidence of weak demand-side pressure in the market for authorised funds, resulting in a lack of competition among fund providers on fees and charges.

The rules addressed this by requiring firms to assess whether fund fees are justified by the value provided to fund investors, by using a set of minimum considerations, the FCA said.

Details of these assessments must be reported to investors together with a clear explanation of what action has been or will be taken if they find that the charges paid by investors in the funds are not justified.

The FCA said: "Our review found that, while some had been conducting AoV assessments well, too many AFMs often made assumptions that they could not justify to us, undermining the credibility of their assessments.

"When considering a fund's performance, many firms did not consider what the fund should deliver given its investment policy, investment strategy and fees. Firms spent a disproportionate amount of time looking for savings in administration service charges that cost investors relatively little compared with the time spent reviewing the costs of asset management and distribution that typically cost investors much more."

It added: "Other firms did not meet the standards we expect by using poorly designed processes that led to incomplete assessments of value (eg failing to assess elements such as fund performance, AFM costs and classes of units, or failing to perform assessments at share class level).

Some of the independent directors on the governing bodies (or Boards) of AFMs did not provide the robust challenge we expect and appeared to lack sufficient understanding of relevant fund rules."

Overall, the FCA said it expected "more rigour" from AFMs when assessing value in funds.

"We expect all AFMs to consider these findings and use them to assess their AoV processes. Where necessary, they should make changes to address shortcomings. We intend to review firms again within the next 12 to 18 months and we will assess how well firms have reacted to our feedback. We will consider other regulatory tools should we find firms are not meeting the standards we expect to be necessary to comply with our rules."