Cometh the Assessment, Cometh the Value

Despite having every appearance of next year’s task, the measures from FCA’s Asset Management Market Study are on the very verge of intruding on our daily lives. Not only do the authorised fund managers, targeted by the new requirements, have to source, select and appoint Independent Directors within the next twelve months, but as the end of September fast approaches, so the FCA’s Assessment of Value starts to come into play. It bears all the hallmarks of a measure born to sneak up on the unwary.

The kindly and comforting words of FCA’s Policy Statement (PS18/8), tell the world that the regulator has generously extended the implementation delay by six months, to the end of September next year. But look at it from the other end of that telescope and you see that as from 30thSeptember of this year, funds will, month by month, begin their first affected period. While publication of the assessment may remain some way off, the time-slot reported on will be under way.

How nasty is the surprise in store?  That depends. It depends on the story that the assessment has to tell. It may be reassuring or it may be revealing. Whichever it is, a wise manager will want to know what to expect. It is a reasonable bet that it will be only as the year draws to a close that some managers recollect the need for the assessment and only then discover what it is that they will need to broadcast to investors about the value that they have received. The assessment, covering, as it must, quality of service, performance, costs, economies of scale, comparable market rates, comparable services, classes of units, and the steps taken to tackle any inadequacies, may make grim reading. While some may fall into that trap, others will plan ahead, using the pre-storm lull to determine the shape they want the assessment to take, the process of formal review that will be applied (and duly recorded in revealing detail for posterity and regulator alike) and the vexed question of who it will be that constructs the assessment, separately for every share class of every authorised fund.

And does this wait for the year to begin? Preferably not. Where the fund year ends on 30thSeptember, the decision is foregone. Where more time allows, managers will be able to experiment with different structures and to consider the anticipated outcome before the year has begun. That way changes can be made before difficult features become the subject of published self-criticism.

Some will go with the appointment of an external assessor; others will recoil in horror at the very idea. Surely an external body will be expensive and inflexible, awkward and determined to find fault. Some might, but plenty won’t be. A good assessor should be sensitive to his clients’ needs, recognising though that a fudged assessment will attract the eye of the regulator and probably the press as well. Rigour and honesty will be essential standards but so too will realism in a competitive world where profit should not be a reprehensible embarrassment. There is also the thought, and a real possibility, that investment advisers regard an external assessment as an important choice factor, doubting the adequacy of the in-house version.

And where will the Independent Directors stand on this question? Duty bound as they will be to provide input and challenge as part of the firm’s assessment, they may insist that it is they who select the assessor. That, when published, should send a powerful message that this is a house that takes its duty to investors seriously.


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