Fund Manager Charges

Question 1

Briefly explain what fund manager charges are

Answer 1

1. Fees investors pay for a fund to be managed on their behalf.
2. These fees cover the cost of running the fund, including research, trading, administration, and the manager’s expertise in selecting investments.
3. Investment managers who run portfolios for clients on a discretionary basis (I.e. buy/sell on behalf of clients without needing prior approval) are required to notify investors within 24 hours if the portfolio falls by 10% or more.

Question 2

Briefly explain what OCF (Ongoing Charges Figure) means

Answer 2

1. The Ongoing Charges Figure (OCF) is the total cost of running a fund, expressed as a percentage of the fund’s value per year.
2. It includes management fees, administration costs, and other expenses, but not trading costs or performance fees.
3. The OCF helps investors understand the real cost of investing in a fund and how much of their money goes toward fees each year.

Question 3

In response to weak competition in the UK asset management industry, the FCA introduced new rules in 2017 to improve value, transparency, and governance.

What are these rules?

Answer 3

1. Assessment of value
   A. Fund managers need to assess annually whether the charges taken from a fund are justified in the context of the overall value provided by the fund.
2. Independent Directors –
   A. At least 25% of an Authorised Fund Manager’s board (with a minimum of two independent directors) must be independent, ensuring stronger oversight.
3. New Responsibility for Fund Managers – A. New prescribed responsibility introduced as part of the Senior Managers & Certification Regime (SM&CR) to increase accountability.
4. Ban on Risk-Free Box Profits –
   A. Fund managers are prevented from keeping risk-free profits made from matching buy and sell orders, ensuring fairer treatment for investors.
5. Easier Share Class Conversions –
   A. New guidance introduced to help fund managers convert investors to cheaper share classes (similar to their current classes) when it is in their best interest, reducing unnecessary costs.