March 5, 2018 / 12:14 PM / 16 days ago

Asset managers in Britain pay compensation over misleading fees

LONDON (Reuters) - A group of asset managers in Britain has paid 34 million pounds ($47 million) in compensation to investors for failing to clearly state how their funds are managed, the financial markets regulator said.

The funds were included in a review by the Financial Conduct Authority (FCA) of whether some funds charged higher fees for “active” management or selecting stocks, while in practice were simply tracking or partly tracking a benchmark index.

Megan Butler, the FCA’s executive director for investments, said the watchdog looked at 84 “potential closet tracking” funds, with 64 failing to spell out clearly enough how “constrained” they were in choosing what to invest in.

Only 20 of the 84 funds adequately explained to investors how they were managed, Butler said in an article on the Daily Telegraph newspaper’s website.

One asset manager is facing a further investigation that could potentially lead to sanctions, she said. The FCA declined to disclose the name of the fund or give further details.

The drive to push asset managers to be clearer on marketing funds to retail investors follows a broader “value for money” review of the funds sector by the FCA in 2017. That review found 109 billion pounds ($151 billion) was held in partly active funds that were charging fully active fees, although it was not “quite correct” to infer that all of the 109 billion pounds were closet trackers, Butler said.

The watchdog is expected to publish as soon as this month the “remedies” or actions it will take based on the review’s findings.

“We expect fund managers to take their duty to their consumers seriously. They should manage their funds the way consumers expect them to and tell consumers what they are doing,” Butler wrote.

“That is why clear promotional material for investment funds is a priority for us. When we’re aware that firms haven’t been clear, we have a range of powers that allow us to intervene to protect consumers.”

The move by the FCA follows similar action across Europe, including from the European Securities and Markets Authority, which said it would analyse data from across the region and potentially take action.

Transparency is also at the heart of the European Union’s Markets in Financial Instruments Directive II and Packaged Retail and Insurance-based Investment Products (PRIIPs) rules, both of which went live in early January.

($1 = 0.7248 pounds)

Reporting by Simon Jessop; Editing by Susan Fenton

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