The Financial Conduct Authority has warned fund managers to improve their value assessments to ensure they deliver fair value for retail consumers.

The regulator said its review of value assessments found that while many firms have better practices in place, some still require improvement.

The targeted review was a follow-up to the FCA’s 2017 Asset Management Market Study, which found evidence of weak demand-side pressure on fund prices, resulting in uncompetitive outcomes for investors in authorised funds.

Since then, the FCA said it has worked closely with industry to encourage a greater focus on assessment of value. 

It said the findings of the latest review showed that many firms have fully integrated considerations on assessment of value into their product development and fund governance processes.

The regulator said the greater focus has also driven changes in fees and charges, resulting in savings of costs to consumers amounting to millions of pounds.  

However, it warned that there remain outliers, where action needs to be taken.

It said that is particularly important with the Consumer Duty which came into force on 31 July, where firms are expected to deliver fair value for retail consumers. 

Camille Blackburn, director of wholesale buy-side at the FCA, said: "Authorised fund manager boards and senior managers are responsible for ensuring value assessments are carried out properly and any issues found are resolved quickly.

"It is vital that firms make sure they are not solely focused on a fund’s profitability over value for money for investors. The Consumer Duty, which is now in place, further supports our expectations in this area." 

What the review found:  

• Examples of good practice include moving investors to clean share classes with no trail commission or cutting funds’ fees. 
• Some firms' independent non-executive directors did not provide sufficient challenge, with some accepting information provided to Boards at face value without probing further. 
• Significant differences between good and poor practice in how AFMs assess their funds’ performance. 
• Firms putting too much emphasis on comparable market rates to justify their fees, rather than conducting an assessment using the full range of value assessment considerations. 
• Some firms now have better processes for allocating costs but are reaching conclusions on AFM Costs and Economies of Scale that don’t take into account the information made available by that better process.  

The FCA said it expects firms to consider its findings and to make improvements where required. 

Jonathan Lipkin, director, policy, strategy & innovation at the Investment Association, said: "Delivering value to investors to help them achieve their long-term goals is at the heart of our industry’s purpose. Since their introduction in 2019, assessments of value have become an increasingly important part of this process.

"We therefore welcome today's findings from the FCA that many firms have now fully integrated considerations on assessment of value into their product development and fund governance processes, in line with the Consumer Duty. We note that there are still some areas for improvement and will continue to work with the regulator and our members to ensure investment funds deliver good outcomes for investors."