The Financial Conduct Authority (FCA) has fined Henderson Investment Funds £1.9m for unfairly charging more than 4,500 retail investors in two of its active funds which were in effect operating as “closet trackers”.
The UK regulator revealed Henderson had reduced the level of active management for its Henderson Japan Enhanced Equity fund and Henderson North American Enhanced Equity fund.
Retail investors within these two funds were then charged the fees of an actively managed fund for five years without being provided the same level of active management.
Investors were charged nearly £1.8m more than if they had invested in a passive fund for which Henderson has disclosed the matter to all affected customers and compensated for the additional costs incurred.
The FCA said matters were aggravated by how long it took for Henderson to highlight the issue as well as its lengthy process to resolve the problem.
The £1.9m fine Henderson received was 30% less than the initial £2.7m fine imposed by the FCA as the fund manager agreed to resolve the matter.
Actively-managed investment funds around the UK have already felt regulatory pressure following the gating and consequently closing of the famous Woodford Equity Income Fund. The Bank of England has opened a review into the mutual funds market to see if more rules are required to minimise the risks of financial stability.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “The FCA requires firms to treat all its customers fairly, not just some customers.
“For retail clients, the Japan and North American Funds were in effect operating as ‘closet trackers’ as the fees charged to them were inappropriate given the diminished level of active management.”
This is not the first time in Europe a regulator has had to step in for active managers misleading investors with false marketing. According to AJ Bell, action has been seen taken against managers in Norway, Sweden and Germany.
Ryan Hughes, head of active portfolios at AJ Bell, commented: “This is an important step forward here in the UK demonstrating the importance of asset managers justifying the fees being charged for supposed active management.
“With the requirement now to produce ‘assessment of value’ statements, it should be harder for closet trackers to hide and hopefully investors will have a better understanding of how their money is being invested and whether it is actually delivering for them.”