THE TOP CLASS WEDNESDAY UPDATE PREFERS PROFITABLE EXOTIC SPICES
And so here we are again, siblings. As soon as one Update is done with, the next one hoves into view, and sometimes I can’t help but believe that these small ways in which we mark the passing of the weeks until the last syllable of recorded time do nothing but light fools such as […]
THE TOP CLASS UPDATE DOESN’T KNOW HOW TO BEGIN TO THANK YOU
A lot to get through this week, but in place of the usual top-of-Update whimsy, please accept heartfelt thanks from all of us to all of you who supported our 20 Mile CatWalk, which we completed on Saturday past. We had an amazing day, which is nice for us, but much more important is the […]
THE SEARCH FOR VALUE
Amidst absolutely no fanfare whatsoever 30th September saw the implementation of one of the main changes as a result of the FCA’s Asset Management Market Study. Over two years since the final report and getting on for 4 years since the terms of reference was issued, it’s fair to say it’s not been a speedy process, but finally, some of the biggest changes coming out of this study are finally live.
So, what has actually happened? All the new rules can be found in PS18-08 (itself published in April 18..), and centre around the issue of value for money. As of now, Authorised Fund Managers (AFMs) must publish a statement setting out a description of the assessment of value, either in the fund’s annual report or in a separate report. In either case, the statement must be published within 4 months of the end of the relevant annual accounting period. No big bang implementation, but these reports need to be published over the coming months. Value for money is subjective, however this is the criteria these reports need to assess….
1: Quality of service
The range and quality of services provided to unitholders.
2: Performance
The performance of the scheme, after deduction of all payments out of scheme property as set out in the prospectus. Performance should be considered over an appropriate timescale having regard to the scheme’s investment objectives, policy and strategy.
3: AFM costs – general
In relation to each charge, the cost of providing the service to which the charge relates, and when money is paid directly to associates or external parties, the cost is the amount paid to that person.
4: Economies of scale
Whether the AFM is able to achieve savings and benefits from economies of scale, relating to the direct and indirect costs of managing the scheme property and taking into account the value of the scheme property and whether it has grown or contracted in size as a result of the sale and redemption of units.
5: Comparable market rates
In relation to each service, the market rate for any comparable service provided:
(a) by the AFM; or
(b) to the AFM or on its behalf, including by a person to which any aspect of the scheme’s management has been delegated.
6: Comparable services
In relation to each separate charge, the AFM’s charges and those of its associates for comparable services provided to clients, including for institutional mandates of a comparable size and having similar investment objectives and policies;
7: Classes of units
Whether it is appropriate for unitholders to hold units in classes subject to higher charges than those applying to other classes of the same scheme with substantially similar rights.
COLL 6.6.20R (Assessment of value).
In addition to the above, over the next 18 months the AFM board will need to appoint two Independent Non-Exec Directors. And they will be covered by the Senior Managers Regime. This should focus the mind, especially for some of the potentially trickier points (4, 5, 6 & 7) above. Hands up if you’d fancy signing off, under SMCR, that your charges represent value for money relative to comparable services? For some funds this could be a difficult discussion…
Now, it’s very early days for this, and repeating the point made above there was never going to be a big bang implementation. These reports will be published as and when over the next 12 months. Having said that, the silence has been deafening. No material from the FCA to promote these changes, and especially to highlight what (if any) role advisers need to play. Should advisers be using these reports as part of their research and due diligence process? No one knows…
And surprise surprise there is no evidence (based on my google skilz) of fund groups publishing any material relating to these changes. Naively I had expected at least one fund manager to go early with these changes and take the moral high ground (“We’ve always strived to deliver VFM, so here we are…”) but as far as I can tell no one has. Move on please, nothing to see here as the .gif says
But despite the silence, this still feels like a huge change. The combination of the new rules, the reasonably prescriptive content of the reports, and the step change in internal governance should be a powerful one. So much so we’ve decided to devote the entire afternoon of our annual DeadX event on this very topic. We’ve lined up a great range of guest speakers all of whom will get into the detail of what value for money means for asset managers, advisers, platforms, NEDs and most importantly, customers. You can find full details at https://www.langcatlive.co.uk/ – over half the tickets are already sold, so don’t hang around. We’d love to see you there.
THE TOP CLASS WEDNESDAY UPDATE JUST WANTS EVERYONE TO PLAY NICELY
So I was at the Schroders Platform of the Year Awards last night, in which this sector of the industry proves each year that there really is no such thing as austerity. Good times. Anyway, it was a fun night, and the question I got asked most was ‘have you done tomorrow’s Update yet?’ and […]
THE TOP CLASS WEDNESDAY UPDATE HASN’T EVEN GOT A YACHT
If you switch the radio off, and get everyone in the office to shush, and the cars outside to stop, and the children to stop playing, and the wind to drop, you can just, if you try really, really hard and perhaps get your ears syringed a bit, hear the world’s smallest violin, wielded by […]
What next for SJP and exit fees?
Over the last few weeks you can’t have failed to notice that The Sunday Times has been giving St James Place a good shoeing. Luxury cruises, opaque fees, leaked phone calls….the hits keep on coming. It’s not been a good month for whoever does SJP’s PR.
One area that has come under criticism (again) is the question of their “exit fees”, or “early withdrawal fees” as they describe them. The Sunday Times (15th September) states “SJP believes the City watchdog wants it to scrap early withdrawal charges on pensions and bonds, and thinks the firm sails “close to the edge” of regulations”.
As luck would have it, the subject of exit fees is something the FCA is currently pondering. The Investment Platform Market Study final report was published earlier this year, with a supporting consultation paper carrying a “discussion chapter” on exit fees. The consultation closed in June, with the paper stating: “For the discussion on exit fees, we will consider responses to the questions and may issue a formal consultation later in the year.”
So, here we are mid-September, everyone is back at work and school, and there isn’t much left of “later in the year”, so what can we expect in response?
Essentially, the FCA has two options:
It proceeds with a ban on exit fees, or
It backtracks and decides a ban isn’t necessary.
I think it would be very unusual for the regulator to make a u-turn at this stage of the process, not least since it recently came under Parliamentary scrutiny for lack of action. So I’m going for 1; there will be some sort of ban.
This is where things get interesting for SJP watchers.
The consultation proposes a ban for Platform Service Operators, which means Life Company models such as SJP would not be covered. However, the FCA recognise this, and has asked the following killer questions within the consultation: 1
“If we introduce a ban or cap on exit fees, should it apply to firms offering comparable services? If not, what are the reasons why a ban/cap should or should not apply to particular types of firm or service?”
“If your firm is a product manufacturer as well as a distributor as defined, what exit fees are applied within the products and services you offer to clients? If such fees exist, please provide a rationale for this charging model.”
“How prevalent are cases where product-related exit fees pose a similar or greater barrier to switching in the investment platforms and comparable services market?”
If there is to be a ban on exit fees, then it’s far from certain who it will cover. If it is just for Platform Service Operators the platforms impacted will argue (with some justification) about the unfair playing field this creates. However, if the FCA grasp the nettle and read across to Life Company models, what about other charges that look and quack like an exit fee? For example early encashment fees where an enhanced initial allocation was paid. Market Value Reductions (which of course aren’t exit fees, but have a whiff of them) on With Profits might even come into the spotlight.
This really is a complex area and the best outcome is not clear.
If the FCA’s deadline of responding to the consultation by “the end of the year” is to be believed, the regulator will currently be sifting through the industry responses to those exit-fee killer questions. Those responses, and perhaps the regulator’s choice of Sunday reading, might well define the next chapter in the SJP story.
[1]. Source https://www.fca.org.uk/publication/consultation/cp19-12.pdf
ONLY 9 WEEKS TO GO UNTIL THE LANG CAT’S DEADx TALKS RETURNS
No, not until Christmas (you’ve got 15 weeks for that. Depressed yet?) But it is just nine weeks until the lang cat returns to The Crypt on the Green in fashionable Clerkenwell for the sixth in our annual series of THE DEADx TALKS. We’ll be there on the afternoon of 14 November, and the purpose […]
THE TOP CLASS WEDNESDAY UPDATE NEEDS NO WET SIGNATURES
Here we are again, siblings. Did you know that 2019 is 70% complete? I’m rounding up, it’s only 69.6% and we won’t go through 70% until Saturday, but I’ve always said that spurious accuracy in whimsical yet informative financial services weekly Updates is unnecessary and overrated. Although, to be completely accurate, the nature and quantum […]
#WorldSuicidePreventionDay
Some of you might already know that I’ve been out and about this year on the conference circuit doing my bit to try and change the way we talk about mental health in the context of the financial services sector, a marketplace (1) traditionally male dominated and as a result (2) really rather bad at […]
THE TOP CLASS WEDNESDAY UPDATE ALWAYS SITS UP STRAIGHT
A shorter Update from me this week, mainly because instead of writing it last night like I normally do, I was up late ending myself with laughter at coverage of the House of Commons. All this uncertainty makes me think more than ever about the value of having someone who can give the longer term […]
