• Trustees Corporate Supervision

Jun 30, 2021

Managed investment schemes must deliver value for money to their investors

A very British precedent

Over quite a number of years now, the United Kingdom has been developing a sophisticated and substantial legal and regulatory machinery to deal with the question of whether managed fund fee charges represent VfM.  Part of this mechanism that came into force in September 2019 required that from January 2020 authorised fund managers (AFMs) must publish yearly in summary form their mandatory annual assessment of the overall value that their authorised funds (ie., authorised open-ended collective investment schemes/CIS) deliver to investors.  The idea behind this requirement, introduced by the Financial Conduct Authority (FCA) in its April 2018 Policy Statement PS18/8, entitled Asset Management Market Study remedies and changes to the handbook – Feedback and final rules to CP17/18, is to ensure that AFMs provide meaningful VfM public domain information that will beneficially influence the behaviour of retail investors, professional investors, advisers and their representatives.  PS18/8 could potentially provide a template for some similarly explicit VfM disclosure rules applying across MIS in New Zealand.

In the policy statement, the FCA sets out its case for the necessity for fund managers to perform VfM analysis and to communicate this information to their investors:

The CTI has published online a set of open source standardised templates that fund managers and others are free to download and fill out when undertaking VfM assessments.  Its home page succinctly sets out its mission:

Welcome to the Cost Transparency Initiative, a new industry standard for institutional investment cost data. The availability of comprehensive and transparent information on costs and charges is important in helping investors to decide whether investments represent value for money. We've created a set of templates and tools which together form a framework investors can use to receive standardised cost and charges information from asset managers.

Along with the templates, which are open source and free to download, we also provide guidance for pension schemes and their advisers on how to make use of cost information, and for asset managers on how to provide cost information to their clients.

Standardisation and consistency are important values for the CTI to propagate in respect of VfM data collection, assessment, and investor reporting.  A sample template of note is the Main Account Template, which is offered in three versions: PDF,  Excel, and machine readable.  This template is designed to be completed by “Asset managers or relevant service providers.”

Deloitte UK’s Centre for Regulatory Strategy EMEA has produced two excellent papers on VfM.  In 2019 it published a 22 page report entitled Assessing the value that investment funds deliver to investors – Navigating the challenges.  This report functions like another “how-to” guide on VfM, in its case pitched at UK AFMs in respect of how they should go about effective VfM assessment in order to produce results that are useful to investors and acceptable to the regulator, the FCA.  The report also contains some good summaries of VfM assessment practices in the UK pensions sector and the US mutual fund sector.  Seven VfM assessment criteria applied by the FCA are examined:

  1. Comparable market rates
  2. AFM costs
  3. Comparable services
  4. Performance
  5. Quality of service
  6. Economies of scale
  7. Share classes

On page 2 of the report there is a summary table which sets out the Centre’s “view of the principle good practices and potential pitfalls” that it recommends AFMs should follow that could readily be translated into the New Zealand situation.  One good practice description states: “Focus on value, not just cost: good value of course does not necessarily mean ‘cheap’.”  As an example of a potential pitfall, the report cautions against, “Including jargon or excessive detail in the published report: to be accessible to retail investors, the report should be concise and use consumer-friendly language.”

In 2020 the Centre followed up with another 17 page report, this time entitled Good value? - A suggested framework for financial services firms to assess the value for money of their products.  This report has a wider ambit than the previous one in that it looks more broadly than only at managed funds to consider other kinds of financial services from a VfM perspective including insurance and consumer credit.  The main concern of the report is to find some standardisation for VfM assessment and reporting across the financial services sector.  The shrewd observation is made that, “‘Value’ can first appear to be a nebulous and debateable concept, and regulators will, understandably, be unwilling to provide firms with template answers for what good or fair value looks like” (p. 5).

The 2020 report considers a number of ways to tackle the economic value provided by financial products, grouping them under five headings:

  1. Consumer value – minimising costs and maximising benefits for investors
  2. Sustainability – commercial life span of both product and producer
  3. Social value – positive or negative “externalities” of the product for wider society such as ESG dimensions
  4. Ex-ante – financial product value at purchase
  5. Ex-post – financial product value over time

The report then provides three practice examples, using the five headings above to create a VfM assessment matrix.  In the New Zealand context, the report’s asset management matrix, being directly applicable to retail MIS, would be the most immediately useful, but the other two examples would have merit for insurers and retail lenders to examine.

The United Kingdom represents a continuously evolving environment for the assessment and reporting of VfM in financial products that will provide many opportunities for adaptation into New Zealand’s circumstances.  The United States could be fertile ground for more such borrowings from abroad, tailoring them to New Zealand’s domestic needs as required.


“Value for money (VfM) and reasonableness of fees (RoF) have come to the fore in New Zealand as central considerations for MIS Managers and their Supervisors to address on a regular basis,” said Matthew Band, General Manager of Corporate Trustee Services at Trustees Executors.

“The FMA’s Guidance Managed fund fees and value for money has provided a pathway for Managers and Supervisors to explore and define how the fees charged and services provided by retail MIS relate to the benefits or otherwise that are actually being received by their members.”

“Corporate Trustee Services is actively working with the other MIS Supervisors under the Trustee Corporations Association (TCA) banner and in conjunction with the FMA on the implementation of the Guidance in practice.”

“One key area yet to be determined is how the information arising from VfM and RoF assessments is to be prepared, packaged and communicated effectively to MIS investors and the public at large.”

“This kind of RoF-VfM financial literacy information promises to be very valuable to the New Zealand public in helping it to make informed investment decisions, but it must be presented in useful, plain-English, no-nonsense form that is fit for retail investors to act on.”

“The UK is evidently much further down the track than New Zealand is in developing managed fund VfM regulations, consistent VfM assessment tools and methodologies, and appropriate means of communicating results of VfM assessments to investors and the wider public.”

“There could be many useful lessons to be learned concerning how the UK has already gone about undertaking the RoF-VfM journey that is getting underway in New Zealand.”

“It is very fortunate that so many excellent VfM resources have been developed and publicly shared in the UK, which is to the wider benefit of investors and fund managers globally.”

For comment or more information, or to be added to the free email subscriber list of “The Supervisor”, please contact Matt at [email protected].

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