According to the Financial Times, the FSA has found that asset managers are spending “tens of millions of pounds” to get access to company chief executives, often paying brokers to set up meetings.
Ed Harley, head of asset management supervision at the FSA, told the paper that the regulator’s analysis of the use of client money by 15 asset managers had found large payments that were “hard to justify”.The payments break the rules set up by the FSA that clients’ money should only be used for trade execution and research.
Mr Harley told the Financial Times: “When we challenged firms as to how they can justify [payments for corporate access] they couldn’t give us a coherent answer that met those criteria.”
The FSA’s findings come after the annual Thomson Reuters Extel Survey found that 29 per cent of the dealing commissions received by European asset managers was being used for access to companies, a rise from 21 per cent in 2010So is a proportion of your savings being used to grease the palms of these brokers?
We will have to wait and see who is to be named and shamed before you can know the answer to the question in the title.
T we he second question that we need to ask is whether these costs are being taken out of the fund manager’s margin- eg the annual management charge or, as I suspect, being taken directly from the fund (in which case it will simply reduce fund performance – not the fund manager’s profits).
Of course what goes around , comes around. Paying a broker to get access to the senior management of companies you are looking to investigate invalidates the research. How can an independent view be formed when money is changing hand in this way and exactly what are the in-house analysts who fund managers rely om, really getting paid for.
Those investing in funds have every right to be outraged if the FSA have found this practice widespread.
We have another Twickenham home international coming up, look out for your favourite analyst , he’ll be in one of the glass-fronted boxes .
Related articles
- FSA to fine fund managers for violating rules (newstatesman.com)
- FSA to crack down on use of investor cash for CEO access -FT (uk.reuters.com)
- FSA to crack down on cash for CEO access (telegraph.co.uk)
- Fund managers under FSA spotlight over corporate access fees (guardian.co.uk)
- Who’s been sleeping in my bed? Shocking stuff on stock lending. (henrytapper.com)
- The dam is full – manage the sluices (henrytapper.com)