The FCA’s Findings on Asset Management

The Financial Conduct Authority (FCA) has identified weak price competition in the asset management industry, particularly in retail active fund management. According to its latest report, fund managers rarely compete on cost, maintaining high fees despite the rise of lower-cost alternatives.

Why Price Competition is Weak

The problem stems from the way investors approach fund selection. Instead of focusing on cost, many investors are driven by performance chasing, which creates an environment where high fees persist.

In a market dominated by performance competition, several factors contribute to weak price competition:

• Investors make decisions based on past returns, even though these are not predictive of future performance.
• Large funds do not lower costs to retain investors, relying instead on inertia and brand reputation.
• Fund managers launch new funds and close underperforming ones, keeping performance-focused investors engaged.