PA ANALYSIS: Turning the screw on fund ratings firms

Added 8th September 2017

Nearly three months on from the Financial Conduct Authority’s final report on its 'Asset Management Market Study', the screws look set to tighten for one of the sector’s key ancillary businesses.

PA ANALYSIS: Turning the screw on fund ratings firms

Investment consultants are major gatekeepers to £6.9trn of assets currently managed in the UK, influencing and directing fund flows. With more than £3trn held in UK pension funds and other institutions, and £1trn under management in retail funds, it is clear why the larger piece of the pie justifies the brighter spotlight being shone on it.

Currently unregulated, the FCA has recommended to the Treasury that investment consultants, in this context, come under its remit. But the paper seems to have overlooked or failed to clarify where investment consulting firms, ratings agencies and research companies used by retail intermediaries sit in the review. What is the future for these businesses? How might their business models need to evolve?

Toe the line

Some commentators believe that because they purely provide information to financial advisers and wealth managers, to use or ignore at their discretion, and because those entities are the regulated points in the chain, that is sufficient.

Others argue that all entities contributing to the process ought to be regulated, forcing greater accountability for any influence they may have on investments made.

Graham Bentley, founder and managing director of GBi2, an investment marketing consultancy, believes the rule should be that anyone providing information used to make a decision over someone investing should be regulated. 

“The issue is that there are so many links in the chain – the fund groups, the platforms, the life companies, the research groups – and they are all taking money out of the process,” he says. “I believe each one of those touch points along that line that contributes to the decision-making process needs to be regulated.”

With more and more wealth managers and advisers relying on buy lists, the line between what constitutes information or advice has become increasingly blurred.

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