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New era begins for Britain's fund sector as watchdog calls time on bloated fees

The City watchdog has called time on an era of bloated fees by giving Britain's ?8 trillion asset management sector just over a year to justify high prices or switch savers to cheaper funds. 
Fund managers were told by the Financial Conduct Authority on Thursday that they have a maximum of 18 months to put new rules into force following a two-and-a-half year investigation into the sector. 
These include a requirement for independent directors to represent 25pc of a UK fund house's board, a move first mooted in the FCA's report on the sector last summer, as well as a rule forcing firms to prove how they provided value to investors through an annual assessment. 
Changes will also be made to limit the taking of so-called "box profits", a controversial practice whereby firms can generate earnings by moving money between their funds. Other measures include making it easier for companies to move investors to cheaper funds if necessary. 
The swathe of new rules has huge implications for retirees across the country as three in four British households rely on the asset management sector to manage their pensions. The FCA wants to make the industry more transparent so that it is easier for investors to make better decisions.
The FCA's final verdict follows a long-awaited report published by the regulator last June, which flagged various concerns in the industry, including weak price competition and a general lack of understanding about how to get value for money. 
"When you say 'we're a defensive fund' what do investors think that means? It's not a football analogy. I don't think they [savers] know," FCA head Andrew Bailey said at the time.
The watchdog's competition director Christopher Woolard reiterated on Thursday that the investment choices people make had a "profound impact" on their financial health, their family life, and society as a whole. 
New era begins for Britain's fund sector as watchdog calls time on bloated fees

Gina Miller, founding partner of SCM Private, said the FCA has done little more "than restating the obvious" in its final rules
The FCA's rules were largely welcomed by those in the industry. The Investment Association, which last year pushed back against some of the FCA's initial findings, praised the fact the watchdog was not just linking value for money with price.
"Changes to focus on wider value, rather than just charges, will better enable firms to demonstrate this value to their customers, although the new public statements could risk overloading consumers with information," added PwC director Andrew Strange.  
Caroline Escott, policy lead at the Pensions and Lifetime Savings Association, said she welcomed the move for investors to scrutinise their fund managers but hoped there would not be a "race to the bottom" on fees. 
However fund manager and campaigner Gina Miller said it was "shocking how long it has taken the FCA to achieve nothing more than restating the obvious". 
She argued that even though the FCA’s study "revealed an anti-competitive and opaque industry", it failed to mention how it might punish firms that breach rules under European legislation Mifid II, which came into force in January. 
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