What the FCA’s PS19/4 means for fund marketers

Asset management is but another industry undergoing massive change. Whilst the speculative microscope can often shine on digital transformation (equally important, that must be said), compliance teams and marketers must also be aware of regulatory rules that seem to be constantly falling into place.
Here in the UK, the policies of the Financial Conduct Authority (FCA) are gospel, and often the rules established by the regulator are followed closely by legislation in Europe. Hence, the most recent measures by the authoritative body in regards to simplifying and improving information to investors are of utmost importance to asset management firms who must take note accordingly.
Specifically, the concern was raised in the FCA’s asset management market study of 2017, whereby investors felt that the muddiness and lack of clarity in current fund disclosures weren’t allowing them to make successful investment decisions. The FCA responded, and on February 4^th 2019 published their Policy Statement 19/4 to give guidance to fund managers on how to best convey fund objectives and practices to their investors in key investor documents, as well as the need to explain their usage of benchmarking for fund performance.
Alongside this importance of clarity in KIIDs, these regulatory changes will spread to product pages also; disclosure covers many facets for fund marketers that must be addressed. Here are my thoughts on what the consequences of 19/4 are for the treatment of marketing documents for asset managers:

Fund objectives need to become simpler and far more understandable. For instance, in keeping with how the FCA apply their guidelines, they are not forthcoming with examples. My thoughts are that fund objectives may be described in shorter “bullet point” form rather than paragraphs; this may increase the space required in documents such as factsheets. If fonts will increase in size, which I think they will, this again may potentially require more valuable space to make this first pointer more prominent. Elsewhere, we are quickly moving down the path of having a “glossary of terms” in marketing documents. We are already seeing this and it is likely to become more common irrespective of the investor type.
The benchmark ruling requires the fund manager to explain to the investor how the fund should be assessed for performance. Whether or not the fund has a benchmark, or uses benchmarks as constraints in the investment process, this ruling requires that more explanation is given to how an investor makes an assessment of the fund’s performance. I believe that this will lead to more text being required in marketing documents, potentially highlighted in a way that clearly articulates the “assessment basis”. This could, for example, become a box high-up on a marketing document with the heading: “How to assess the funds performance”. Once more, this could result in more use of real estate on the page.

Another key ruling regarding funds using benchmarks (and/or as investment process constraints) is that these benchmarks must be used consistently across all marketing documents. My recommendation would be that managers no longer have a choice of whether they optionally show benchmarks on their factsheets or web pages – it is now mandatory that if a benchmark(s) is utilised in any way to describe how the portfolio is constructed, then said benchmarks must be described and used across all marketing documents.
Looking to the near future already, updates on whether disclosure is becoming clearer across the next two years are already underway. Rules for benchmarking will apply from as early as 7 May 2019 for new funds and 7 August for existing funds; the latter date also applies to rules based around performance fees.
Taking this guidance seriously is now a priority for asset managers, not just to comply with the FCA’s regulations, but also to best service your investors as industry practice continues to experience rapid change.