FCA Asset Management Market Study Remediation Actions

1. FCA Asset Management Market StudyRemediation actions – what managers should be doing IN COMPLIANCE Main Title

2. OBJECTIVES Topics covered by the Asset Management Market Study 2015 How do asset managers compete to deliver value? Are asset managers willing and able to control costs and quality along the value chain? How do investment consultants affect competition for institutional asset management? Are there barriers to innovation and technological advances?

3. additional remedial action Asset Management Study Final Report 28 June 2017 Presentation of charges Investment Consultants Competition Review Platform Study Fund Governance and Value Investor communication including benchmarks FCA response to the CMA’s investment consultants market investigation 18 July 2018 Institutional disclosure working group (IDWG)/Cost Transparency Initiative (CTI) 9 November 2018 CP 17/18 PS 18/8 28 Jun 2017 CP 18/9 PS 19/4 4 Feb 2019 MS 17/1.3 Final 14 Mar 2019 CP 19/12 14 Mar 2019

4. FCA Recommendations: Fund governance and value April 2018 • Mandatory and general arrangements to make it easier to switch investors into better value share class 1 April 2019 • Box Management: • AFMs to pass ‘risk-free’ box profits (i.e. profits generated by netting off transactions) back to the fund and disclose box management practices to investors • AFMs to disclose their policy on operating a manager’s box and how any profits will be treated in the prospectus • Overall value for fund investors must be considered by AFMs on an ongoing basis and formally documented at least once a year considering at least: • Economies of scale when funds grow, break points and sharing savings with investors; • Whether charges are reasonable in relation to the costs incurred; • The different share classes available to investors, whether these offer value for money, why some investors are in more expensive classes; • Investor service quality assessment • Annual reporting 30 Sept 2019 • AFMs to appoint a minimum of two, and at least 25% of the total board membership, independent directors to the AFM board 9 Dec 2019 • A Prescribed Responsibility under SMCR to act in the best interests of investors (and ensure value for money) April 2018

5. FCA Recommendations: investor communications • Guidance to make clear that COBS 4 does not require further information to the UCITS KIID (or the NURS equivalent) as legislation already sets out the form and content of the UCITS KIID in an exhaustive manner 4 February 2019 • Publish guidance reminding AFMs how they should express fund objectives and investment policies to make them more useful to investors: • explain clearly what objectives are looking to achieve and how • explain the constraints that the fund’s portfolio construction may be under • explain any non-financial objectives and how they will measure and report progress against these objectives February 2019 • Benchmarks: • explain why AFMs use benchmarks, or if they do not, how investors should assess the performance of the fund • references must be referenced in consumer facing documents, shown appropriately and consistently against fund past performance • improve clarity where funds are benchmark constrained where limited as to how far their holdings can differ from the weightings • of a particular benchmark index 7 May 2019 for new funds 7 August 2019 for existing funds • Performance fees must be calculated on performance net of other fees in all cases 7 August 2019 • Applies to UK AFMs (an ACD, an authorised contractual scheme manager or an authorised unit trust manager), in respect of their management of authorised funds (open-ended collective investment schemes (CIS)).

6. FCA Recommendations: platforms • To make it easier for consumers to move their assets to a new platform without unnecessary liquidation of investments: • platforms to offer consumers the choice to move units common to both platforms via an ‘in-specie’ transfer • platforms to request a conversion of unit classes, where this is necessary to enable an ‘in-specie’ transfer to take place • a requirement for platforms to ensure that consumers moving onto a new platform are given an option to convert to discounted units, where they are available for investment by the consumer • Further consultation on a ban on platform exit fees • Forward agenda: • Conducting a review of the outcomes of RDR and FAMR in the financial advice market during 2019. The amount invested in non-advised discretionary services remains only a small fraction of the model portfolio market. Given this, FCA think there is currently limited scope for harm, and additional requirements are currently not proportionate. The RDR/FAMR post-implementation review, due to begin later this year, will explore discretionary services further, including whether consumers can access the information they need to make informed choices between services. • In 2020/21 the FCA will review industry progress in making charges more accessible and comparable for consumers who are shopping around.

7. What should investment managers be doing? The FCA’s proposal are directed at AFMs and Platforms but portfolio managers could be affected, where they use a host AFM. Firms should: • Understand the AFMs proposals for “Overall Value” and “Service Quality” assessment, criteria, process and disclosure • Understand how the manager will work with the AFMs SMF with Prescribed Responsibility to act in the best interests of investors • Understand the AFMs proposals for independent directors, sourcing, quality and information requirements • Review published guidance on fund objectives and work with AFM to ensure all fund documents and marketing materials communicate objectives clearly • Consider use of benchmarks for comparative performance and strategy purposes for pending fund launches (from May) and all funds (from August) • Review that performance fees are calculated net of all other fees • For managers of model portfolios: consider clarity of information provided to investors covering risks, objectives and costs directly or via advisers and platforms to allow for informed consumer choices – this would be work ahead of the proposed FCA RDR/FAMR post-implementation review

8. Contact us Ellis Wilson Limited Registered and trading address 71-75 Shelton Street, London, WC2H 9JQ Registered in England & Wales, no. 11357986 Tel: +44 (0)20 3146 1860 www.elliswilson.co.uk IN COMPLIANCE