A quiet revolution is taking place in asset management and it relates to how we measure value. The implications could stretch beyond asset managers and across the value chain if the FCA extends the framework that it sets out in the latest AMMS policy statement to other sectors.
The FCA claims that it was never its intention to focus unduly on lower charges as the chief indicator of value for investors. Nevertheless, it is climbing down from using the term ‘value for money’. In the statement it examines how value might be effectively measured. The FCA believes that the final rules for assessing value are closer to the ‘Gartenberg principles’ used in the US. And it has given guidance on the minimum considerations that Authorised Fund Managers (AFMs) must take into account when they assess value:
- Quality of service
- AFM costs
- Economies of scale
- Comparable market rates
- Comparable services
- Classes of unit
In its commentary, the FCA also appears to have listened to fund groups who argue that performance should be an important factor when assessing value – both past and reasonable projections of future performance. This feels like the right thing to do.
What we have in PS18/8 is the beginning of a framework for measuring value. AFMs could go further than the basic requirements set out by the FCA but they finally have some idea of what ‘value’ means to the Regulator and to the end-investor.
AFMs must also now have an individual or ‘Person Responsible’ under the Senior Managers regime –likely to be the Chairman– who is responsible for ensuring that value is assessed. The policy statement requires this person to ‘take reasonable steps to ensure that the firm complies with its obligation to carry out the assessment of value, the duty to recruit independent directors, and the duty to act in the best interests of fund investors.’
Group Personal Pension providers are now required to have Independent Governance Committees (IGCs) and this could provide a template for ‘AFMs’ to report annually on value, another stipulation set out in this Policy Statement.
And the FCA’s requirement to report on ‘value’ might be extended into other parts of the value chain. Advisers and platforms could be asked to follow suit. At the very least, each entity in vertically integrated groups should be required to make this assessment. In the opening paragraph of the main summary you could substitute AFM with adviser, DFM or platform and it would be pretty powerful. Vive la révolution.