Authorised fund managers’ assessments of fund value 2023

Multi-firm reviews Published: 10/08/2023 Last updated: 10/08/2023

These are the findings of our most recent review of processes Authorised Fund Managers (AFMs) use for assessments of value (AoVs) for the funds they operate. This is a follow-up to the feedback we gave from our first review in July 2021 and was supervisory activity highlighted in our Asset Management Portfolio Letter earlier this year.

1. Who this applies to

This multi-firm review will be of interest to:

  • Authorised Fund Managers
  • Governing bodies of Authorised Fund Managers ('Boards')
  • Independent directors of Authorised Fund Managers

2. Why we did this work

The Collective Investment Schemes sourcebook (COLL) rules require AFMs to carry out an AoV at least annually, report publicly on their conclusions and appoint independent directors to AFM Boards. These rules came into force in September 2019 as remedies from our Asset Management Market Study Final Report (AMMS) in June 2017.

The AMMS found evidence of weak demand-side pressure on fund prices, resulting in uncompetitive outcomes for investors in authorised funds.

The COLL rules address this by requiring firms to assess whether firms’ fees and charges (referred to collectively as 'fees') are justified by the value provided to fund investors, measured against the rules’ minimum considerations (referred to as ‘considerations’).

Firms must report the details of these assessments to investors, together with an explanation of what action the firm has or will take if they find investors’ fees are not justified.

We conducted an initial review in 2020/21 to see how well firms had implemented the rules and published our findings in July 2021, (referred to as July 2021 findings) and said that firms should review their processes against them. 

We wanted to review the quality of AoVs of a different sample of firms to see how they had implemented the rules and responded to our July 2021 findings. 

3. Summary of our findings 

Compared with our last review, many firms have a better understanding of the rules and have significantly improved their AoV processes.

Most firms are making fewer assumptions within their analysis that they cannot evidence as reasonable and are presenting higher quality management information to AFM Boards and AoV committees.

Outlier firms in our review were typically firms who were not able to support their assumptions and assessments with sufficient evidence.

We expect firms to be able to substantiate any claims they make.

We found continuing maturity in AoV processes that resulted in many firms taking remedial action when poor value was identified including some reductions in fund fees, typically by a few basis points. Overall, this amounted to savings for fund investors of millions of pounds. We also saw some firms move investors in pre Retail Distribution Review (RDR) share classes to 'clean' classes with no trail commission. The savings for these investors were even more significant.   

While we found firms had a better understanding for the need to justify fees, most remedial action did not involve cutting funds’ fees. Where fees were cut, the share class fee reductions were almost always driven by adverse comparable market rates findings rather than other considerations.

This suggests that fund managers continue to 'cluster' around price points identified in the AMMS as a market failure. Some firms cited erroneous operational or regulatory barriers to reducing fees. 

AFM Boards or their committees sometimes reached conclusions that did not take into account improved management information.

Tensions between a fund’s profitability for a firm and assessing the fund’s value for money for investors appear to be influencing AoV decision making and outcomes. This is a conflict for AFM Boards to be aware of and to manage.

Firms that fail to make reasonable decisions to deliver good outcomes will likely fall short of the standards expected to comply with our rules.   

This finding is particularly important given the role of an AFM Board is to oversee its funds in the best interests of fund investors. The Board and Senior Management Function (SMF) holders remain accountable for achieving this aim, with independent directors playing an important role in providing independent perspectives, and the director allocated SYSC 24.2 Prescribed Responsibility ZA being accountable for the entity’s compliance with AoV rules. 

We will continue to engage with those firms with significant AoV deficiencies, using our regulatory tools as appropriate. 

4. What we did

Between November 2022 and March 2023 we visited 14 AFMs (of different business models and sizes) to review their AoV arrangements.

We reviewed relevant information and held interviews to understand firm processes, the inputs they used and their AoV governance. We used case studies to explore how they assessed value against the minimum considerations.

We evaluated our findings against requirements and guidance in the FCA Handbook and against our July 2021 findings. This includes COLL requirements for undertaking the AoV, the report content and obligation to notify investors, and the requirements for independent directors on the AFM Board.

We also considered other relevant rules including COLL 6.6A.2R, COBS 2.1.1R and COBS 2.1.4R

5. Next steps

On 31 July 2023, the Consumer Duty came into force (The Duty). The Duty requires firms to act to deliver good outcomes for retail customers and to consider cross-cutting rules (in particular a requirement to avoid causing foreseeable harm to retail consumers).

For authorised funds the AoV rules and guidance act in place of the price and value outcome rules of the Duty. But the Duty as a whole is broader than just the price and value outcome, covering the full product lifecycle, from product design to consumer communications and support on an ongoing basis. Therefore, firms should still consider how they meet all other aspects of the Duty.

The Duty did not apply at the time of the review, but many of the examples of good practice may be relevant in applying the wider price and value requirements of the Duty to other products and services.

Firms should make sure that their practice, including around delivering fair value, for other products and services is consistent with the various expectations arising from the Duty.

Firms’ AoVs are crucial to delivering fair value in the sector. Good AoV processes enable firms to make well informed assessments of value and helps ensure consumers receive fair value from their investments in authorised funds.

Each AFM should consider our findings and assess the quality of analysis, decision-making and governance of its AoV processes to assure compliance with COLL 6.6.20R and COLL 8.5.17R. AFMs should consider whether they are taking appropriate action to address identified value concerns.

Firms might also consider whether steps can be taken to simplify the annual AoV report. Where necessary, the AFM should implement appropriate changes. 

Where we see outliers, we will follow up and take necessary action to ensure AoVs are conducted in line with our rules and expectations. 

6. Key findings

Gap analysis

All firms we visited had performed a gap analysis against the July 2021 findings, however, some had overlooked key findings or taken actions that did not address them.

A few firms wrongly judged that their size or business model meant some of our feedback wasn’t directed at them.

Directors not involved in the gap analysis often hadn't considered how well it had been performed and accepted its findings at face value. Generally, where we found these gaps, it led to a weaker AoV process being in place at the time of the review. 

Integrating AoV into business-as-usual

Some firms had fully integrated AoV into their business-as-usual processes for product development and fund governance.

These firms reviewed AoV considerations before launching new funds and simultaneously considered the impact that any changes to funds during the year might have on the next AoV.

Other firms operated their AoV process as a stand-alone annual exercise and conducted their product strategy and governance without specific reference to AoV considerations.

These firms tended to have more difficulty demonstrating a strong assessment of value. 

Limited impact of improved processes on assessment decisions

Most firms’ processes were providing improved information and analysis for their AoV assessments.

However, in decision making these improved inputs were sometimes ignored or unreasonably explained away.

Firms decided current fee levels could be justified even though improved information raised significant questions or countered that position.

Some AFM Boards told us fund fees were determined by more senior committees or boards in their global or PLC Groups with AFMs having only limited influence.

We remind AFM Boards and their Senior Management Function holders (SMFs) that, regardless of inputs from their groups or other parties, they are solely responsible under COLL6.6.20R for completing AoVs and concluding whether fees are justified.

We expect other parties, including group committees and boards to respect this responsibility and requirement.   

Independent challenge still has limited effectiveness

While some good challenge from independent non-executive directors (INEDs) was evident, most firms' INEDs did not provide sufficient challenge.

We found that some were too involved in the collection and analysis of information to be able to challenge its suitability subsequently.

Others thought they shouldn't review the AoV methodologies and could accept information provided to Boards at face value.

There is an important balance for INEDS. Involvement in the AoV process should be sufficient to understand the firm’s methodology, but not amount to an involvement that compromises independence.  
A few of the INEDs we spoke to didn’t understand their firm’s process in areas such as performance and AFM costs, or evidence an understanding of the objective of the AoV process. 

Processes for assessing quality of service

Good firms followed a meaningful process for assessing fund manager expertise and quality of investment process when considering quality of service.

They used relevant metrics to measure service provision and provide meaningful management information to Boards, enabling directors to understand quality beyond simplistic process descriptions.

One innovative and thoughtful approach involved a firm considering accurate descriptions in requests for proposals, that had been successfully used to win institutional mandates, provided some validation of investment process quality where a fund was managed to the same strategy.

Firms assessed third party fund accountants and transfer agents using metrics comparing them with other providers.   

Poorer practice seen was firms assessing the quality of its delegated managers' investment processes largely by relying on managers’ attestations about the quality of their own operations.

A small number of firms did not consider the quality of service provided by an affiliated company when assessing if the fee charged for the service was justified.

The payments for the services were a material part of the funds’ ongoing charges figure. We expect firms to consider the quality of services in the context of payments made for them.  

Firms assessed ESG under quality of service. We found good practice where some firms didn’t apply positive ESG scores for funds that were not marketed as sustainable funds, including one firm that scored its ESG delivery as neutral, at best, because it judged that its funds would not merit a label under the FCA’s Sustainability Disclosure Requirements (SDR) and investment labels proposals.

This approach guards against giving credit for an ESG service level where it is in fact simply an extension of the existing investment process.

A few firms were continuing to use low complaint and investment breach numbers and the management of fund liquidity to justify positive service quality scores.

We consider these are hygiene factors that should not in themselves contribute towards service quality assessment.

They should, however, detract from scoring where there is poor performance.


We continue to see significant differences between good and poor practice in how AFMs assess their funds’ performance. Those doing it well set fund objectives and performance thresholds which reflect their investment strategies, such as an actively managed fund outperforming a market comparator benchmark over a fund’s minimum holding period, before finding good performance.

Good practice also gave poor ratings to active funds that significantly underperformed market comparator benchmarks, even where funds had achieved capital growth.

Those with poor practice placed greater emphasis on more easily achieved capital growth targets, despite the fund being managed actively and without techniques to reduce materially market risk.

One firm rated an actively managed fund as having good performance although it underperformed the market benchmark by 10% over 5 years. 

Asymmetric performance metrics

The metrics some firms applied to assess funds' performance were asymmetric. These firms used relatively undemanding hurdles for deciding a fund had good levels of performance, while the poor performance threshold was disproportionately high. In some cases, a red rating was almost impossible to achieve.

Some firms had no threshold framework for determining good and bad performance and could not explain in detail how they undertook assessments.

Measuring against market benchmarks

Where firms measure performance relative to market benchmarks, some continue to attribute long term underperformance to an out-of-favour investment style. We raised concerns about this in our July 2021 findings.

Investment styles that can affect performance for extended periods should be disclosed within a fund's Key Investor Information Document, together with appropriate risk warnings. 

Firms with good practice did not improve performance scoring of previously underperforming funds if short term improvements had not yet had an impact.

Poorer processes allowed firms to move a fund to a good assessment score even where remedial steps taken had not yet improved performance over the fund’s holding period. None of the firms we assessed reduced fees for poor performance.

Fee reductions for poor performance were explicitly considered by only a few firms despite COLL 6.6.20R requiring firms to justify fees in the context of overall value delivered. 

Multi-asset funds and funds of funds

We identified significant improvement in some firms’ analysis of multi-asset funds (MAFs) and funds of funds (FoFs).

Instead of limiting comparisons with other MAFs and FoFs, these firms had broadened the scope to compare their performance with the markets to which their funds were primarily exposed.

However, others still compared their MAFs' performance only with competitors' MAFs, rather than market-based benchmarks or relevant passive funds.

Even when firms were using better comparisons initially, some did not use the improved information, often reverting to peer group comparisons to justify good performance assessments.      

AFM costs and economies of scale

Almost all firms had taken steps to ensure that fees can be justified in the context of the costs the AFM incurs in operating a fund, and not simply a comparison with competitor fees.

A few firms were confusing AFM Costs with Comparable Market Rates and so were not complying with COLL 6.6.20R.        

Firms with good AoV processes undertook detailed activity-based cost allocation at fund and share class levels. This typically revealed significant variations in profitability between larger and smaller funds.

This type of profitability analysis enables firms to better consider AFM Costs. It also allows firms to recognise when a fund grows and economies of scale (EoS) support lower fees.

Other firms had not built a detailed costing model or were still allocating significant costs based on funds’ relative assets under management.

This limited the ability to analyse costs at a fund and share class level. Not surprisingly, profit margin variations between large and small funds for these firms were significantly smaller, and board and committee discussions about economies of scale less informed. Firms should consider whether their current costing models adequately support AoV.  

Using fund-level profitability to inform assessments

Some firms with well-developed cost analysis did not use fund-level profitability information to inform their assessment. Instead, they preferred using comparable market rates comparisons, to override both EoS and AFM costs conclusions. We expect firms to give each consideration in COLL 6.6.21R due attention. 

The best practices in EoS involved firms negotiating better prices with third party asset managers or service providers as funds grew, passing on the full benefit of these savings to fund investors through lower fees.

We saw examples where some firms extracted size benefits but retained them or didn’t scrutinise or negotiate down the fees for services provided in-house or by affiliates with the same intensity as with third parties.  

Some firms said that they had reinvested economies of scale back into the business and that this would benefit fund investors. In these cases, we were concerned that it was the firms or their general client base benefitting, rather than the investors in the funds where the largest economies were being generated.   

For the economies of scale consideration, we expect firms to discuss in product development the scale the fund needs to reach to earn a reasonable return on the firm’s investment in developing it to scale.

Where firms choose to reinvest economies of scale into the firm for the benefit of fund investors, they should be able to evidence the benefits and link them to the relevant fund’s investors.

Firms should be able to show the proportion of economies of scale accounted for by the reinvestment and how the firm assessed the remainder.

Using comparable market rates

We continue to see this COLL 6.6.21R consideration being used by many firms to override one or more of the other minimum considerations.

When there was evidence from another consideration suggesting that a fund's fees might not be justified, most firms switched to assessing comparable markets rates to justify current fees.

Some firms advised they would only consider cutting a fund's fees if they found they were out of line with competitor funds' fees. This is a misapplication of COLL 6.6.20R consideration of all seven minimum considerations.

While the rules do not prescribe any weighting of the considerations, we consider that justifying fees solely based on a comparison with peer funds does not amount to meaningful compliance with COLL 6.6.20R. Nor does it reflect the intent of the rule as a remedy for weak price competition identified by the AMMS. 

In applying comparisons of funds' fees with those of other funds, some did so without first adjusting for differences in service levels.

One example was a firm comparing its funds that do not include a platform charge within their ongoing charges figure (OCF) with competitors' funds that have a platform fee included, without adjustment.

Another firm inflated a competitor’s platform charge to reflect its own, more expensive, platform charge before comparing.

We consider these practices make favourable assessment outcomes more likely and undermine the effectiveness of the assessment process.  

Comparable Services

We saw some good practice for this consideration. One firm used a thoughtful approach by plotting the fees paid by segregated mandate clients of different sizes to create a line of best fit. It used this to compare the fees paid by different sized funds to identify significant divergence. 

However, some poorer practices were also present. One firm concluded that lower fees for its asset management affiliate’s segregated mandate clients were due to discounts institutional clients had negotiated through their wider relationship with the affiliate.

As a result, it concluded that the firm’s funds' higher fees could be justified. But the firm did not seek to quantify the size of the discount or consider whether, as an authorised fund manager with many funds managed by its asset management affiliate, it was able to negotiate similar relationship discounts for its fund activities.

Another firm mistakenly considered the fees individual fund investors would pay for their money to be managed on a segregated basis, rather than the potential for fee discounts that an entire fund might secure, using the buying power of its pooled assets.    


Most firms had significantly improved quality of their reporting since our July 2021 review. AoV reports contain disclosure about assessment conclusions using the seven considerations and, where relevant, actions to deal with poor value. 

We continue to receive firm feedback about the cost of producing and distributing these reports to investors.

We encourage firms to consider whether the production costs can be reduced and note that our rules permit them to be contained as disclosures in funds' annual reports.