Consumer Duty's Assessment of Value Is Quietly Reshaping Fund Economics
The FCA’s Assessment of Value obligation is enforcing structural change in fund economics.
Fee compression is becoming regulatory fact, not market choice.
Table of Contents
The Assessment of Value obligation under Consumer Duty is not a disclosure exercise. It is a structural constraint on fund economics. Fund managers treating AoV as a compliance checkbox are building latent enforcement liability.
The FCA’s emerging enforcement approach treats persistent fee retention despite declining operational costs as a fair value failure. Six active Consumer Duty investigations into fair value are underway. Total FCA fines in 2025 reached £179-186 million, a 230% increase from 2023. This is not regulatory noise. This is pricing power being dismantled.
The Assessment of Value Obligation Is Now a Cost Constraint
Consumer Duty fund economics operates under a discrete regulatory test. PRIN 2A.4.2R requires manufacturers to ensure products provide fair value to retail customers. COLL 6.6.20R specifies seven assessment criteria: quality of service, performance, costs, economies of scale, comparable market rates, comparable services, and unit class structures.
The FCA’s Multi-Firm Review of Assessment of Value in August 2023 exposed how firms treated the obligation as a box-ticking exercise. Findings revealed firms prioritising profitability over investor value, insufficient challenge from independent non-executive directors, and over-reliance on comparable market rates as justification for holding fees steady.
Consumer Duty fund economics is now defined by cost visibility. Firms can no longer justify stable fees with reference to historical rate cards or industry averages. The regulatory test requires affirmative evidence that costs have not declined, that scale economies have not materialised, or that service quality has demonstrably improved. Absence of downward fee pressure in a declining cost environment is flagged as a failure.
Sheldon Mills, then FCA Director of Strategy and Competition, made this explicit in May 2023: “The price and value outcome is one of the four key outcomes that firms find the hardest.” Translation: funds cannot hold fees when their cost base falls.
Fee Compression Is Now a Regulatory Destination, Not a Market Accident
The data confirms compressed Consumer Duty fund economics. UK active fund fees fell from 1.08% in 2015 to 0.89% in 2020, representing 44% fee compression over a decade according to Broadridge analysis. Index tracking products captured 28 billion pounds in net inflows during 2024-2025, signalling investor price sensitivity and regulatory messaging alignment.
This compression is not incidental to Consumer Duty. It is structural.
Asset managers face a choice: reduce fees in response to cost declines and pass scale economics to investors, or trigger regulatory examination of AoV assessments. The FCA’s Dear CEO Letter to asset management firms on 3 February 2023 positioned fair value assessment as the primary supervisory concern. Firms ignoring declining cost bases cannot build credible assessment documentation.
The Investment Association reported UK asset under management grew 10% to a record £10.0 trillion in 2024-2025. This scale should mechanically reduce per-unit costs. If it does not appear in fee structures, AoV documentation becomes indefensible. Consumer Duty fund economics treats fee stickiness in a rising AUM environment as an enforcement vulnerability.
Independent Non-Executive Directors Cannot Defend Static Pricing
The assessment of value process depends on challenge and sign-off from independent non-executive directors. The FCA’s August 2023 multi-firm review found INED challenge was insufficient. Boards approved AoV assessments where fees had not moved despite material cost declines.
This pattern is now the primary enforcement target. Firms where INEDs have approved static fees across a 3-5 year period during which technology costs fell, compliance automation expanded, and AUM grew are exposed. The regulatory argument is straightforward: INEDs either failed to challenge management, or management failed to bring material cost information to the board.
Consumer Duty fund economics creates a documentary trail. Every AoV assessment becomes evidence. If Assessment of Value reports show stable costs across multiple years while operational reality changed materially, that gap becomes the case file. Regulators have demonstrated willingness to fine for processes that look compliant on paper but reflect weak board challenge.
What Fund Managers Are Doing Wrong
Firms are building static AoV frameworks. They run annual assessments, make minor adjustments to language, and return similar conclusions year after year. Cost stays flat. Performance remains competitive. Fees do not move.
This approach was viable under pre-2023 conduct regulation. It is not viable under Consumer Duty fund economics.
The FCA’s emerging enforcement pattern expects boards to document cost analysis in granular detail. If technology spend fell 15%, that decline must appear in the assessment. If headcount did not move while AUM rose 20%, that asymmetry must be addressed. If comparable fund fees dropped but this fund’s fees did not, the assessment must explain the divergence.
Crucially, “we assessed and concluded fees were fair” is not an explanation. The assessment must show the work. Cost drivers must be itemised. Changes must be justified. Fee stability requires affirmative evidence of offsetting cost increases or service improvements.
Firms treating Assessment of Value as a risk-transfer exercise to INEDs are underestimating regulatory risk. Consumer Duty fund economics enforcement will focus on process strength, cost analysis depth, and documented challenge. Static conclusions in the face of changing cost environments will be treated as evidence of failed governance.
As I explored in my analysis of why templated compliance frameworks cannot survive firm-specific regulatory pressure, one-size-fits-all AoV templates are vulnerable to enforcement. Consumer Duty fund economics requires firm-specific cost decomposition.
The Structural Shift in Fund Economics
Consumer Duty’s Assessment of Value obligation is now reshaping fund business models. Pricing discretion has contracted. Cost transparency has expanded. Board accountability has intensified.
Funds with static cost bases and declining fee pressure will face regulatory pressure to reduce pricing. Funds with material cost declines that have not been reflected in fees are enforcement targets. Funds where INED challenge is perfunctory rather than substantive are building governance liability.
The regulatory signal is clear: Consumer Duty fund economics expects fee progression to track cost reality. Managers who wait for competitor pressure to move prices risk conclusions that they prioritised profit extraction over fair value. Managers who move proactively can document reasoned assessment and board alignment.
UK asset management is £10 trillion in scale and growing. Consumer Duty is that growth’s structural constraint. Firms adjusting business models to acknowledge cost declines and pass economies of scale to investors are building regulatory resilience. Firms resisting compression are building enforcement exposure.
This is not discretionary. It is the new operating environment.
For more on how Consumer Duty is reshaping asset management governance, explore the Artizan Governance insights series.
This article is provided for general informational purposes only and doesn’t constitute legal, investment, or regulatory advice.
Date: 20 October 2025
Written by: Asad Bukhory