In a recent policy statement FCA has set out a package of measures to improve the quality, comparability and robustness of information provided to investors in retail funds.

Background and scope

This policy statement follows on from the FCA's Asset Management Market Study This study has already resulted in measures to improve competition in the sector and improve fund governance.

The guidance is relevant to all managers of UK regulated retail funds. FCA has flagged that this guidance is potentially also relevant to unit-linked and with-profits business. FCA is currently carrying out further analysis of with-profits and unit-linked products and expects to conclude this work later in 2019 and decide then whether further intervention into unit-linked and with-profits is required.

New measures in a nutshell

The measures comprise:

  • new "non-handbook" guidance on how to describe fund objectives and investment policies to make them more useful to investors.
  • changes to the Conduct of Business Sourcebook requiring managers:
    • to explain why their funds use particular benchmarks or, if they do not use a benchmark, to explain how investors should assess the performance of a fund;
    • to reference benchmarks used consistently across the fund's documents;
    • when presenting a fund's past performance, to do so against each benchmark used as a constraint on portfolio construction or as a performance target; and
  • rule amendments in the Collective Investment Schemes Sourcebook requiring performance fee disclosures to be calculated on the basis of a scheme's performanceafter thededuction of all other fees.

Guidance on investment strategy disclosure

In response to queries raised in consultation the final guidance explains more clearly what information about investment strategies should be included in key investor documents. Essentially the FCA wants managers to disclose those elements of their strategy that will be a fundamental feature of management. For example, if a manager expects to use general investment powers to follow a specific strategy (e.g. growth investing) this should be disclosed. By contrast, if a Manager expects to use flexibility to invest in different ways depending on their view of market conditions they should make clear the flexible nature of their investment strategy.

Guidance on when Benchmark disclosures may be required

Managers should also note that in Non-Handbook Guidance FCA has flagged that even where there is no explicit requirement for a manager to manage a fund's portfolio in line with a benchmark in a fund's terms or a stated investment strategy, Managers should still consider whether there may be

"practical, internal restrictions within the firm which limit how far a fund can differ from the composition of a benchmark. "

Examples given include where:

  • the risk management monitoring and control;
  • manager remuneration; and/or
  • portfolio management systems using hard or soft limits

operate by reference to a benchmark.

Firms are reminded that they should assess whether those or any other such restrictions mean that the fund is in practice managed with reference to a benchmark. If so they should disclose this, along with the degree of freedom in relation to the benchmark.

Further industry guidance awaited

The measures follow extensive industry consultation. The FCA established a Fund Objectives Working Group to help inform their proposals in this paper the Investment Association (IA) agreed as part of this process to work with its members and consumer representatives, informed by consumer research, to promote the use of consistent terminology in communications from fund managers about their funds. The IA is expected to publish their guidance on fund communication in February 2019.