The third option would be that the single charge includes all charges taken from the fund, including both implicit and explicit transaction costs, but with an option for “overspend”.
“Under this option, the single charge would cover all costs, although in order to compensate asset managers for trades in exceptional circumstances, managers could have discretion to take additional transaction charges from the fund which would then be clearly explained to investors in the annual statement.”
The fourth option would be as above but with no option for overspend. Under this route, the fund manager would be bound by the single charge figure and pay any additional costs due – including transaction charges. This option would see the fund manager bearing all the risk of a difference between forecast and actual trading costs.
In its initial response, Chris Cummings, chief executive at the Investment Association, said: “We support the FCA’s objectives to ensure that competition in the industry works to the benefit of its customers, whether individuals, families or institutions.
Over the coming weeks, we will engage closely with the FCA to understand its findings and the full implications of potential remedies.
“We are pleased that the FCA has recognised the industry is already leading on improving cost transparency for our clients by developing a new Disclosure Code, and the investment industry notes and welcomes the regulator’s strong backing for the project. We look forward to working more closely with the regulator to deliver this important goal.”
The FCA is inviting responses to its interim paper by 20 February 2017, with a view to publishing a final report in Q2 2017.