QD view: feet dragging by the current administration on an issue of considerable importance to the investment companies industry means that a new Labour government offers our best hope for a solution
If you have been following the cost disclosure issue story on our website, you will know that one of the strands that the industry has been pursuing to get this sorted was a private members’ bill that was going through the House of Lords. Baroness Altmann had sought to remove investment companies from the Alternative Investment Fund Managers Directive regulation – we discussed it here.
Very unfortunately, after the bill had taken six months to work its way through the House of Lords – securing cross-party support as it did so – and was just about to be put to the House of Commons, the general election has killed the whole process. It is a case of back to square one with no guarantee even that a new version of the bill would be selected for debate within the House of Lords. I think this speaks volumes about the archaic inefficiency of our parliamentary system, but it also means that we must look for hope elsewhere.
The FCA introduced an interim measure that allowed investment companies to give more information on the breakdown of their costs. However, it says that it cannot do more until the government passes legislation to repeal and replace the EU legislation that created the cost disclosure mess.
HM Treasury should have had a rocket up its backside after the Chancellor promised action on this in his Autumn Statement. It did call for comments on proposed legislation in January, and you may remember that over 300 of us responded to that. However, no timetable for legislation was put forward and, as with the Baroness’s bill, the general election has introduced a new delay to this.
Much then will depend on how urgently this is viewed by the incoming administration, which – as the election seems a foregone conclusion, particularly after the never-ending series of PR disasters that the PM has managed to create since announcing it – will fall to Rachel Reeves and her team. I can’t help feeling that there is already a lot on her plate.
Richard Stone, chief executive of the AIC, called for urgent action on 23 May, saying; “There is broad cross-party support for the principle that government sets the boundaries for regulation and the FCA sets the rules. The incoming government on 5 July must prioritise finalising and passing the legislation which is already in process so that the FCA can reform cost disclosures.
The simplest solution is to remove investment companies from the scope of regulated cost disclosure – returning to the position that we had before January 2018. The government must also address the misleading way in which investment company costs are presented by wealth managers and platforms. The next government should move swiftly so the FCA can stick to its current timetable and complete its work on this by the autumn.”
The debate on the approach to cost disclosures was rekindled for a while when an article in Citywire tried to argue that the industry was seeking to hide costs from investors. Unsurprisingly, that ruffled a lot of feathers. To be absolutely clear, that is not what the industry is trying to do. We want full and detailed cost disclosure, we just do not want to confuse investors with misleading information.
The reality is that professional investors and advisers are making irrational investment decisions now, based on the optics of fund charges rather than which investment is likely to make their clients the most money. That cannot be allowed to continue.
As Ros Altmann said on 31 May: “We have an emergency: the London closed-end investment company market has become dysfunctional. Investors are selling because they think they are paying something they are not, or fund managers and wealth managers are being forced to sell for fear of offering portfolios that are optically too expensive and thus uncommercial.”