BANKS tend to grab the headlines when it comes to financial scandals and systemic risk. But many people have a lot more money squirrelled away with the asset-management industry, in the form of pensions and lifetime savings, than they do in their bank accounts. A new report* from one of Britain’s regulators, the Financial Conduct Authority (FCA), suggests that the industry is not doing a great job at looking after investors’ interests.
The British fund-management industry is huge, with some 1,840 firms managing around £6.9trn ($8.6trn) of assets. With the ten biggest fund managers representing only around 47% of the market, competition ought to be pretty intense. But the FCA report finds that fees in the actively managed sector (ie, funds that try to beat the market by picking the best stocks) have barely shifted in the past ten years. Operating margins across a sample of 16 fund-management firms have averaged 34-39% in recent years, one of the highest of any industry. Profits that heady smack more of an oligopoly than of a cut-throat battle for business.
There is one part of the market where fees have come down—passive, or tracker, funds…Continue reading