Consumer duty has contributed to a slowdown in growth in some asset funds according to Defaqto investment consultant, Danny Luggah.
Speaking on at panel at Defaqto's annual conference today (September 12), Luggah said one of the goals of consumer duty was to increase fairness to the end consumer and increase transparency.
He added: “One of the results of the impacts of that has been a lowering in the fees that consumers are facing."
Luggah pointed to a series of figures for multi-asset funds showing between 2022 and 2023, the average ongoing charges figure (OCF) on multi-asset funds fell from 0.86 per cent to 0.82 per cent, which he called a “fairly significant fall” in the course of a year.
He said this trend has continued into this year, with the current OCF for multi-asset funds sitting at 0.80 per cent.
“To highlight that further, you only need to go to 2019 when OCF was over 1 per cent, so a fairly significant fall over the last five years,” he said.
Luggah attributed this fall partly to consumer duty regulations, introduced in July 2023.
He said as a result of the sustained fall in OCF, there is an increased need to stay competitive and, consequently, the growth in asset funds have slowed.
“In 2019-2022 the average growth was 8 per cent per annum in multi-asset funds but that fell off to just under 4 per cent in 2023 and that trend has continued into this year with the average growth being just under 2 per cent,” he stated.
Also on the panel was MICAP head of research, Mark O’Donnell.
He said the firm had provided support to advisers dealing with tax advantages, so they could keep in line with consumer duty principles, encouraging transparency.
“All types of managed investments are medium to long term investments,” he explained.
“To qualify for business relief you have to hold the assets for two years, with VCTs you need to be invested for five years, if you’re in the unlisted EIS space then it is typically between seven and ten years before an investor has fully exited from that portfolio.
“Therefore, from an adviser’s point of view, they need to show they have done the research and that this is the right investment for their client."
In July, the FCA's Sheldon Mills addressed industry concerns that rules to protect customers could come at the expense of growth, but he argued the two were not mutually exclusive.
He said: “We want to see inclusive, sustainable growth, where consumers have appropriate access to products and services that meet their needs.
“In delivering that, we face many changes and challenges, and we must remain flexible and adaptive to meet them.”
tom.dunstan@ft.com
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