Reforms to bring about greater transparency and clarity around pay, fees, stewardship and voting record are required, the organisation said.
This morning the FCA announced plans to launch its first wholesale market study into investment and corporate banking to assess whether competition in the sector is working properly.
The IoD, which with has about 35,000 members in the UK and overseas, welcomed this move but believes the fund management sector should be given greater importance in the regulator's thinking.

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Responding to the banking review, Oliver Parry, senior corporate governance adviser at the IoD, said: "The IoD broadly welcomes the FCA's decision to investigate competition within the investment banking industry. There remain some unanswered questions about potential conflicts of interest and value for money in the investment banking industry.
"However, we believe that the FCA should prioritise looking at the fund management industry. There are many reasons to be proud of the UK's fund management sector, but a centre piece of reform in fund management has to be greater transparency. Greater clarity is required about their pay, fees, tradition activating and perhaps most pertinent, their commitment to stewardship and their voting record.
The IoD is a non-political body but added: "Labour's proposals to require fund managers to reveal how they vote on pay deals, for example, is a sensible step in the right direction."
Christopher Woolard, FCA director of strategy and competition, said on announcing the banking study this morning: "We have chosen this particular area because the benefits of effective competition in the market could be significant. The UK is a global hub for investment banking, and this sector plays a crucial role in our economy, helping companies raise capital for investment, expansion and funding ongoing operations.
"What was clear from the discussions we had with stakeholders and firms was that there are unanswered questions about potential conflicts of interest and value for money in this market."