• Asset Management

Morningstar pushes radical funds transparency to FCA

Fund analysts unveil a long laundry list of fund fees disclosures they want to see the UK regulator impose

Morningstar is pushing the UK's Financial Conduct Authority to set tough new rules on fund management fee disclosure - as it defends its own service from the regulator's scrutiny.

The mutual-funds analyst released its response to the FCA's far-reaching review of the UK's asset management industry on April 11.

Christopher Traulsen, its director of ratings and global manager research, said: "We fully embrace what the FCA is trying to do... profit margins at fund managers of 30% to 40% are tremendously high in comparison to other industries."

Morningstar used its response to argue for a single, all-in charge figure in pounds and pence. This should include both explicit trading costs, such as fees paid to banks and brokerages, and implicit costs, such as estimates of the price of failing to secure the best trades.

Traulsen said: "There are different methodologies for estimating these, but the FCA has the power to insist on a standard format so everyone is compared on a like-for-like basis."

He also argued strongly for fund managers to be obliged to provide more detailed fee breakdowns so that industry analysts and journalists can "scrutinise the industry" on the costs of specific services such as custody, administration and marketing.

Morningstar is also backing the ideas of independent oversight boards for mutual funds, as in the US, and says they should have to write a report to members every year justifying the fees they have agreed to pay the fund managers.

Alongside its policy recommendations, Morningstar also mounted a defence of its own business, which came in for criticism in the FCA's interim review, published in November.

The FCA said at the time: "Share classes awarded a gold, silver or bronze Morningstar analyst rating do not significantly outperform their benchmarks net of charges; net-of-fees excess returns are statistically indistinguishable from zero over various different holding periods."

Jonathan Miller, Morningstar's head of manager research for the UK, disputed the finding and said the regulator had used too short a timeframe - three to five years - and too few funds.

Morningstar presented the findings of its own, similar assessment, looking at performance data going back to 2002. It found funds with a positive gold, silver or bronze rating outperformed their respective indices by 0.69% a year on average, compared to an average 1% loss for funds that it does not rate.

Miller said: "In summary, we believe this shows the qualitative analysis that Morningstar does has proved effective in picking funds."

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