Conflicts of interest weigh on UK fund managers

UK fund managers believe managing conflicts of interest is the biggest challenge for their industry, which is already under fire from regulators over failures to put clients first.

According to a poll of more than 650 UK fund managers and analysts, more than a third (38 per cent) find meeting their duties to clients a significant ethical challenge, up from 33 per cent in 2013. Duties to clients encompass areas such as providing honest investment recommendations and making sure performance figures are presented fairly.

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The findings will intensify pressure on the fund market to do more to put clients' interests first. The UK regulator, which is considering carrying out an investigation into how the industry operates, warned in February that asset managers are not doing enough to guard against potential insider trading and market abuse.

The Financial Conduct Authority also issued its second-largest fine on record for a UK asset manager in February when it found that traders at Aviva Investors had manipulated deals for their own profit over an eight-year period.

Will Goodhart, chief executive of CFA UK, said several CFA members raised concerns about the appropriateness of benchmarks that are being selected for funds to measure their performance against. "Managers may be selecting benchmarks that make it easier to outperform," he said, which would in turn enable them to charge higher fees.

Daniel Godfrey, chief executive of the Investment Association, which represents the interests of the UK fund industry, said that his organisation is working with investment managers to identify common conflicts of interest and issues that might make it difficult to meet responsibilities to clients.

"We will then identify and share examples of best practice in dealing with these conflicts and issues and, where appropriate, produce formal guidance. We believe that this is the best way to continuously improve standards and we would hope to see future surveys moving in a positive direction," he said.

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