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SCM Direct publishes new research on anti-competitive behaviour in the UK fund industry


Gina Miller (pictured), founding partner of SCM Direct, writes that their latest research finds 70 per cent by number and 73 per cent by value of actively managed equity funds charge an identical Annual Management Charge (AMC) of 0.75 per cent, which she says indicates no genuine price competition. 

SCM Direct believes their findings are proof of anti-competitive behaviour within the active UK fund management industry, and the regulator should investigate to determine whether some form of price collusion, whether formally or informally, is being undertaken by major fund groups.The firm writes that this is not only to the detriment of UK investors, but also contravenes the FCA’s ‘Treating Customers Fairly’ principle.“Recently, the FCA highlighted in its excellent Asset Management Study that ‘there is considerable clustering of prices for active equity funds at both 1 per cent and 0.75 per cent for clean share classes (those that do not include distribution payments).’  As the FCA own chart within this report, illustrates, the fee received by the fund manager themselves – the AMC – seems similar across the retail class of funds.”

The SCM team analysed 683 funds with combined assets under management of GBP320.5 billion. SCM Direct found that 70 per cent by number of this extensive sample of funds, had an identical AMC of 0.75 per cent per annum (the overall average AMC was 0.76 per cent per annum).  In terms of overall, assets managed the figure was slightly higher at 73 per cent of clean chare class funds charging an identical AMC of 0.75 per cent per annum.

The firm writes: “This 0.75 per cent per annum is also identical to the 0.75 per cent per annum AMC fee that was bundled with other charges prior to the 2012 Retail Distribution Review (RDR) which was anticipated to result in downward pressures on fund manager charges for active funds.  But our findings show that this has not changed for at least five years, and the perception that AMC fees would fall is therefore completely untrue.”

SCM has calculated, based on industry data of GBP554 billion invested in retail equity funds, of which 88 per cent is ‘actively managed’, had the underlying AMC reduced by just 0.1 per cent per annum, i.e. from 0.75 per cent per annum to 0.65 per cent per annum, UK savers and investors would be GBP488 million better off every year.
SCM writes: “Agreements between competitors to fix prices is regarded as one of the most flagrant breaches of competition law. When the merger occurred in April 2014 of the UK Office of Fair Trading and the Competition Commission, to form the new Competition and Markets Authority (CMA), investors in the UK might rightly have expected robust enforcement of competition rules, but this does not appear to be the case in the fund management industry, based on SCM’s research findings. It is surely time for both the FCA and the CMA to investigate price fixing in UK retail actively managed investment funds?”

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