Crackdown on Fees Investors Are Charged Continues As Fund Manager Henderson Fined £1.9 Million

The FCA has made a move to reinforce its new tougher stance on mis-selling and unjustifiable fees within the retail fund industry by handing out a £1.9 million fine to Henderson - one of the UK’s biggest fund managers. The fine was meted out for Henderson continuing to charge thousands of investors for five years without offering any kind of service in return.

An FCA investigation found that 4700 investors in Henderson Investment Funds were charged for active fund management between 2011 and 2016 when the funds were in fact simply passively tracking stock market indices. At the time, Henderson, which has subsequently become part of the larger Janus Henderson after the 2017 merger between Henderson Global Investors and Janus Capital Group, did inform institutional investors in the funds effected it was reducing the level of active management and, as a result, the fees it charged. However, the company did not inform the smaller retail investors in the same funds.

The FCA found that a redundancy programme started in 2011 significantly reduced Henderson’s active management division meaning that the company did not practically have the resources for all of its funds to be actively managed. Despite the company’s American and Japanese funds being moved onto a passive, tracking footing, small investors were charged up until 2016, with the fees paid totalling £1.78 million.

The Henderson fine follows on from a 2018 FCA investigation which resulted in 71 fund managers being instructed to compensate investors to the tune of £34 million for overcharging them. Many observers believe the mis-selling and over charging action has so far been taken against by the FCA represents ‘the tip of the iceberg’. Jason Hollands, managing director of the wealth manager Tilney, comment for The Times:

“This should send shivers down the spine of many investment management companies. The FCA is making an example of Henderson with this fine. That should be a warning shot to all those businesses offering products that are not being actively managed but are claiming to do so. This is far from an isolated case. Companies like these must face heavy fines to stop all active managers getting a bad name.”

It is reported that at least one further investment manager is currently being formally investigated by the FCA for also continuing to charge active fees despite their funds moving to a passive approach. Another several companies have been “written to”. Ryan Hughs, AJ Bell’s head of active portfolios views the FCA crackdown as a positive development and one that brings the UK’s approach to fund fees more in line with that of other European countries:

“In other markets regulators have been very active around closet trackers, with Norway, Sweden and Germany all seeing action being taken against managers. This is an important step forward in the UK, demonstrating the importance of asset managers justifying the fees being charged for supposed active management.”

Last year, the FCA analysed 96 suspected closet trackers, finding the marketing material issued by 71 to be unsuitable. Janus Henderson has accepted the fine and responded that the company’s systems and controls have been improved since the period over which the mis-charging took place. It issued a statement which read:

“Janus Henderson Investors accepts the FCA’s findings and the financial penalty and has co-operated fully throughout the process. Affected clients had already been separately contacted and fully compensated.”