Xafinity is not a Fiduciary Manager nor is it an Asset Manager, instead focusing on the traditional consulting model of advising pension trustees independently, where these conflicts do not arise.
The FCA has suggested that there should be a more general increase in the regulation of the work carried out by investment consultants. We support this suggestion, provided that it does not disproportionately increase the cost burden faced by pension schemes.
The FCA’s aim is to ensure the markets work well and investors receive value for money. The report covered both asset management and investment consultancy. This reflects the importance of pension schemes as institutional investors.
“We at Xafinity completely agree with the aims of the FCA in this regard. Fundamentally, we believe that the client must be at the heart of all pension scheme advice. We fully support actions that will improve our industry and the outcomes for pension schemes.”
Ben Gold, Head of Pension Investment, Xafinity said: “We welcome that the FCA has remained focused on improving the outcome for investors. This is despite significant lobbying from some parties (including the ‘Big 3’ through a combined reply) to retain the status quo. The FCA is proposing a number of actions. These are aimed at stamping out perceived conflicts of interest in the industry, restoring savers’ trust in asset management and ensuring pension schemes receive high quality advice. Xafinity welcomes these actions and the increased regulation that will follow if this achieves the desired aims. We also believe that increased competition amongst investment consulting firms will only be beneficial to schemes and their members.
“A growing number of pension funds have entrusted investment consultancies to oversee and manage their assets, a practice known as fiduciary management. In its interim report the FCA found that on a per-client basis, fiduciary management generates more than twice the revenues than traditional advisory services generate. However the opaqueness of fiduciary managers’ performance and fees comes in for criticism, and the level of fees compared to traditional services can create perceived conflicts. A lack of publically available, comparable performance information on fiduciary managers also makes it hard for investors to assess value for money.”
Ben Gold continues: “In our view, fiduciary management can bring some advantages and work well for some schemes. However, there are also some issues which require addressing. An example is the conflict of interest concerns about performance reporting (and hence assessing the success of the manager), typically being carried out by the manager themselves. Using a third party to help choose, appoint and monitor a fiduciary manager or other ‘in-house’ funds should become the norm and not the exception and we expect this will be an area of growth for the industry, and for Xafinity. Recognising this, we have designed a new fiduciary management oversight proposition that is solely focused on the scheme and their objectives.”
Ben Gold concludes: ”Amongst other actions, the FCA is continuing to consider referring investment consultancy services to the Competition and Market Authority. They are also recommending asset allocation advice becomes subject to FCA regulation. We support the findings in the report and the direction of travel that the FCA is driving the industry. This report puts investors (in our case pension schemes) back at the heart of the asset management and investment consulting industries. For us, this is where they’ve always been.”
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