How do we measure ‘value for money’?


I expect when all of us buy something, we ask ourselves “does this represent value for money?” The definition of value for money will be subjective, maybe you are buying a brand which represents quality and high end, or maybe you are driven to make a purchase purely on price. Regardless it’s likely to be a combination of factors in most cases.

Historically we have never really analysed value for money when buying investment products and funds. However going forward, as investors we will receive the fund Board’s assessment of “value for money” on an annual basis, as part of the new requirements from the Asset Management Market Study. The new obligation will be implemented in September 2019 and I think it’s fair to say that many Assets Managers are scratching their heads on this one.

The FCA has identified 7 areas which are expected to be reviewed and commented upon in the annual assessment;

  1. Quality of service
  2. Performance
  3. AFM costs – general
  4. Economies of scale
  5. Comparable market rates
  6. Comparable Services
  7. Classes of units

Firms should notice that there are obviously crossovers between the areas identified for review, principally criteria 4-6 should expand on 3, AFM costs. That said you can’t avoid the underlying thrust of the exercise i.e. to review performance against cost and the treatment of different categories of customer.

My fear is that Asset Managers, in order to tick the box, could easily slip into producing yet another report, full of jargon

Explicitly the Board must reference the 7 criteria back into their obligation to operate the fund properly from the Collective Investment Scheme sourcebook rules, but like most guidance from the regulator it is open to interpretation.

Taking a closer look Boards will have to consider, among other things;

  • Services provided by third parties i.e. administration, custody, audit, client experience and collect matrix of data to inform themselves.
  • Benchmarking and whether or not the fund stated objectives are clear enough for clients to know what to expect if they invest.
  • How much and what peer group review should take place.
  • What period of performance should be reviewed and what is the full OCF (ongoing charges figures)
  • Can scale drive economies through the funds and can the fund benefit from these (conversely do Boards need to consider what happens, if diseconomies of scale occurs if the fund size decreases)
  • Is it right that we compare institutional funds and products with retail products?
  • Are we still paying trial commission to cope with post RDR regime on certain share classes? Does this benefit underlying investors i.e. what are the consequences?

I could go on and on. The Investment Association has produced guidance on PS18/8 and they include a timetable of when these publicly available reports should first start appearing, depending upon the accounting period for the individual fund. This is helpful to firms but I suggest not very helpful to potential consumers or current investors. My fear is that Asset Managers, in order to tick the box, could easily slip into producing yet another report, full of jargon containing the information they think is important and miss the point. Boards will have to sit up and take a long hard look at the finished report and ask, “If I am a customer does this help me understand if this fund represents value for money”.


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Julia Kirkland, Head of FSTP Limited FSTP is now part of ZISHI and OSTC Group

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