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Call This a Punishment?

 |  March 6, 2018

Britain’s FCA offers little redress and less transparency for investors

By Mark Gilbert

Fund managers who ripped investors off by selling them actively-managed funds that merely tracked an index are to be punished by British regulators. But the amount of redress is paltry compared with the size of the alleged fouls. And the regulator isn’t publicly identifying the wrongdoers. For shame.

Writing in Monday’s Telegraph newspaper, Megan Butler, the Financial Conduct Authority’s director of supervision for investment wholesale and specialist, said the watchdog reviewed 84 funds it suspected of misleading investors. Of those, 64 have been ordered to rewrite their marketing materials to be more truthful about the fact they are closer to passive funds in their investment behavior.

In addition, investors will receive 34 million pounds ($47 million) in compensation for being overcharged.

That’s chicken-feed, given the scale of the misidentification the FCA itself has accused the fund management industry of perpetrating. In a June report, the regulator estimated that about 109 billion pounds is tied up in active funds that closely mirror the market and charge higher fees than passive products.

SCM Direct, the fund manager founded by Gina Miller, calculated that in 2014 investors in the 10 “worst-offending” index-huggers lost 346 million pounds in underperformance when compared with index trackers. The study, which analyzed 137 billion pounds of assets, argued that the losses could be as high as 803 million pounds for all individual investors.