The FCA’s Final Findings on the Asset Management Market Study

Is the Investment Management Industry ready to meet the cost and regulatory challenges associated with the FCA Asset Management Study and MiFID II?

Written by Paul Walker-Duncalf, Managing Partner at Linear Outsourced Trading

I suppose it could have been worse! And after all, we support value for investors, good governance, the proper means to study and compare performance and competitive pricing.

There had been suggestions that the whole of the Asset Management Industry would be referred to the Competition and Markets Authority and that there would be an ‘all in’ ex-ante fee that asset managers would have to provide to clients, including not just fees and administrative costs, but also transaction costs (including spread, trading commissions and market impact).

This did not happen, although consultants are still at risk of referral. The FCA has also stopped short of imposing a fixed all inclusive fee in the very short term, while voicing support for it following further consultation this year.  This approach takes into account the forthcoming implementation of MiFID II in January 2018, which puts greater onus on asset managers to be more transparent around transaction costs as part of revised rules on best execution, requiring them to demonstrate a continuous review and improvement process.  The ability to deliver this will require increased oversight of Transaction Cost Analysis (TCA).

In our view, this is a pragmatic outcome. It will promote informed debate between asset managers and clients, and prevent the risk of unintended consequences such as managers not trading to avoid elevated costs, when it is in their clients’ interest to do so.  The importance of this, is that it will not put the UK Asset Management industry at a competitive disadvantage internationally. In an industry where the majority of regulators and global asset managers try to implement the most stringent standards, these new rules will probably be considered in other jurisdictions.

The FCA’s final report will have a far reaching impact on the asset management industry. At a time when there has been a significant transition to (low fee) passive investment products, at the expense of (high fee) active management, there will be further fee compression as competition is encouraged and the transparency of costs and performance is mandated. During the most recent market cycle, the prosperity of the industry has been helped by strong equity markets, but that may not continue. It is clear that asset managers will have to face the reality of increased legal and compliance costs, fee erosion and declining margins, revenues and profits.

A small number of firms have been vocal about how they intend to deal with the implementation of unbundling within MiFiD II. The majority of these have decided to take the moral high ground and pay for research themselves which will add to business cost, rather than passing costs on to their clients through trading commissions. The rest of the industry are being remarkably reticent about their intentions.  We suspect that they are likely to continue to use client commissions to pay for research. In an era of increasing transparency of charges, it is questionable how long this practice can continue particularly when performance net of fees has in general been challenged.

The asset management industry appears to be in denial, partly because markets have performed well and hidden economic reality. Yet we are at a pivotal point. If the trend of falling earnings and rising costs continue as many have predicted, there is likely to be more consolidation in the sector and a radical review of costs.

A number of operational functions have been outsourced for many years. It is likely that asset managers are going to need to be more inventive and consider outsourcing some front office functions to adhere to regulatory compliance, manage costs, or both.

At Linear Outsourced Trading, our experience in running the global equity trading business for the largest asset manager, leads us to believe we can provide relief from the regulatory burden, reduce operational risk and deliver cost savings. We are confident that a combination of exemplary people, technology and service across all asset classes will surpass the needs of clients who entrust us with their trading.

The FCA’s report can be found here.


With expertise across all asset classes, Linear offers a solution to Investment Managers as an extension of their business, delivering:

  • Buy-side expertise
  • Reduction in the regulatory burden
  • Improvement in costs

Linear partners with investors, enabling them to focus on portfolio management and deliver alpha to their clients.

The team includes Paul Walker-Duncalf, Richard Lilley and Felix Mason alongside six traders.  This service provides a solution to the separation of research and trading.  Linear can also offer outsourced Middle and Back Office providing straight through processing from the trading business, which is supported by cutting edge technology.

If you would like to speak to Linear about its outsourced trading offering, please contact Paul Walker-Duncalf, Richard Lilley or Felix Mason on +44(0)20 3603 9827, or email 

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