The Financial Conduct Authority (FCA), the financial watchdog in the UK has imposed a £1.9 million fine on major fund manager Janus Henderson.
The company has been pulled up for overcharging its small investors and is being punished for breaking the law.
It has now come to light that thousands of UK investors have been charged too much on their fees for the last five years ever since Henderson changed Japan and North American funds into closet trackers. The Janus Capital Group and Henderson Group merged in 2017 but prior to the merger back in Nov 2011, the fund manager made a decision to cut down on the active management of both funds.
The problem with this was that the fund informed its institutional investors about this but did not notify its retail investors. It is important for investors to know that their funds were no longer being actively managed. Active management means that there is a fund manager who is monitoring and tweaking the fund to correspond with the current financial markets. This would merit a higher fee since the manager needs to be paid. But without active management, investors should not be paying as high a fee.
Closet trackers, which were what the two funds were turned into, often feel like they are active funds and often charge higher fees. But in truth, they are more like passive funds, which should merit lower fees.
What makes it worse is that the company gave preferential treatment to the big investors in these funds. They offered management services without charge to institutional investors. According to the FCA, smaller investors were overcharged £1.78 million in fees from 2011 to 2016.
In response to this, the FCA fined the firm £1.9 million for the unfair treatment of its customers. These retail investors, along with 75 intermediary companies and two institutional investors, who were not notified, have been compensated for the extra charge they experience over those five years.
The FCA hit the investment firm with a massive fine as it wanted to send a loud and clear message across the industry that all investors have to be treated equally. This is a big step forward for the FCA as it is setting an example for other financial markets.
A number of countries have been cracking down on the unfair fees of closet track for some time now but nothing significant has come of it. Experts hope that this encourages fund managers in the UK to be more careful on their charges for closet trackers in the future.