FCA: Use $5bn client fee not to party or meeting but for research

A recent crackdown by the U.K. Financial Conduct Authority (FCA) has failed to prevent the huge commission payments shelled out to asset managers over the last year. According to an independent analysis conducted by expert observers of this year’s Thomson Reuters Extel Awards, the overall pool of money allocated for commissions paid to top asset managers stands at around $4.9 billion (USD). This figure is roughly around the same amount as the total for the previous year. The large group of independent analysts of the 2014 Extel Awards consisted of 7,000 fund managers and experts on the financial services industry. According to Reuters and other national media sources, the FCA’s new restrictions on asset managers’ use of investor money sought to decrease the overall pool of funds paid out in commissions for brokers of large financial firms.

In 2013, the FCA issued a stern warning to fund managers, which stated that the bureau would not tolerate the usage of investor funds for the purpose of awarding bonuses to brokers who arrange special meetings with senior executives. The FCA also stated in its warning to fund managers that dealing commissions can only be paid for the use of “substantive” research on the financial services industry. Additionally, a stringent FCA investigation of the aforementioned practice concluded that such arrangements were costing investors an annual amount of 500 million British pounds.

Steve Kelly, managing director of Thomson Reuters Extel told reporters he thought that fund managers sought to comply with FCA regulations. Kelly also stated however, that increased equity market activity caused higher spending on trade execution and research. “There has been a resurgence in the IPO [initial public offering] market and fund flows have turned positive in equities. It is reasonable to believe there will be more spending on research and advisory [services] in parallel with execution,” Kelly stated. Additional FCA research results are expected to be revealed during some time in July 2014. The research will once again focus on the amount of money paid out in commission to fund managers and the usage of investor money by large financial firms.

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One response to “FCA: Use $5bn client fee not to party or meeting but for research

  1. Pingback: Asset Management Fees: The end of abuse? | Alpha Banker·

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