Consumer Duty’s Assessment of Value and fund economics

The obligation sits in COLL 6.6.20R. It requires the authorised fund manager of a UK authorised fund to assess, at least annually, whether the payments made out of scheme property, meaning the charges and costs investors bear, are justified by the overall value delivered. The rule doesn’t leave value to the manager’s own definition. It names seven criteria the assessment must address, and several of them test the fee directly.

The seven are the quality of the service; the fund’s performance, net of all payments and over an appropriate timescale; the costs the manager actually incurs in providing the service; economies of scale, meaning whether savings have been passed on as the fund has grown; comparable market rates, meaning what the manager charges against the market for similar funds; comparable services, meaning whether this fund’s investors pay more than the manager’s other clients for substantially the same service; and classes of units, meaning whether investors sit in an appropriate share class or in an expensive one when a cheaper class is open to them. Taken together they interrogate whether the fee is earned. Three of them (economies of scale, comparable rates and share-class appropriateness) point straight at reasons a fee should come down.

Governance reinforces the rule. COLL 6.6.25R requires the manager’s board to include independent directors, at least two and at least a quarter of the board, so the assessment isn’t signed off only by the people whose revenue depends on the answer. The outcome must then be published, at least annually, in a form investors can reach, and where a fund hasn’t delivered value the manager must explain what it’s doing about it. Seven economic criteria, independent challenge, publication, and a duty to remediate: the design compresses fees that can’t be justified, and it has been running under growing supervisory attention for years.

The assessment of value rules predate the Consumer Duty, which now sits on top of them and lifts the standard. PRIN 2A.4, the price-and-value outcome, requires a firm to make sure the price a retail customer pays is reasonable relative to the benefits received. That fair-value test applies across the firm’s retail business, not only at the annual assessment. The two regimes work together: the assessment of value is the specific, criteria-based annual mechanism for funds; the Consumer Duty is the continuous, outcomes-based obligation around it.

The Duty changes the standard in three ways. It raises the bar from COLL-compliant to good-outcomes, so a fee arrangement that ticks the assessment of value criteria can still breach the Duty if it produces a foreseeable poor outcome; Consumer Duty can be breached despite a passing Assessment of Value. It brings the cross-cutting obligations at PRIN 2A.2 (to act in good faith, avoid foreseeable harm and enable customers to pursue their objectives), which bear directly on charging and on leaving investors in expensive legacy share classes. It adds board-reporting obligations under PRIN 2A.8. Under PRIN 2A.8, retail outcomes must be a central focus of the firm’s systems and controls and its internal audit function, and the governing body must, at least annually, review and approve a report on the outcomes the firm delivers and confirm the firm is complying with the Duty. The price-and-value question now gets answered twice, in the fund’s assessment of value and in the firm’s Consumer Duty board report, and the two need to tell the same story.

One technical point shapes how a board frames its obligations. Where Principle 12, the Consumer Duty, applies to retail business, it displaces the older treating-customers-fairly Principle 6 and the communications Principle 7, under PRIN 2A.1.3. A retail-fund manager should run its fairness and value arguments through the Consumer Duty rather than Principle 6, and shouldn’t assume the older principle is still the live standard for the retail book.

A separate regime is arriving that managers routinely confuse with the assessment of value, and the two differ in scope, mechanism and consequence. The FCA’s Value for Money framework, consulted on in CP24/16 and refined in CP26/1, applies to workplace defined-contribution pension defaults, not to authorised funds. It introduces a standardised rating, moving in the latest design to a four-band red-amber-green-green scale with forward-looking metrics and a central comparison database, and it carries a hard consequence: a poorly rated arrangement must, in time, transfer its members out. The first assessments under it are targeted for 2028. It applies to workplace DC pensions, not authorised funds.

For funds, the equivalent obligation is the COLL assessment of value plus the Consumer Duty price-and-value outcome, not the Value for Money framework. A manager that misreads the scope of the pensions framework misjudges its own obligations. The discipline for funds is the seven criteria, the independent challenge and the published assessment, sharpened by the Duty. A board should know which regime governs which product and not let the pensions material distract from the fund obligation.

A related assumption also needs correcting. The product-governance rules in PROD 3 require a manufacturer to design a fund for an identified target market and to check its charging structure for compatibility with that market under PROD 3.2.14R. They don’t impose a fair-value test for funds. That obligation comes from the Consumer Duty. PROD 3 is the target-market discipline beneath the Duty’s products-and-services outcome; the value test belongs to the Duty and to the assessment of value. Getting that mapping right lets a board put each obligation in its place instead of assuming the charging question is answered in the product-governance file.

Several of the seven criteria point in one direction — downward — on the fee, and the manager carries the burden of justifying any move against the direction they point in.

Economies of scale is the clearest. As a fund grows, the cost of running it per pound of assets falls, and the criterion asks whether the manager has passed that saving on. A manager whose fund has doubled in size while the fee stayed flat has to show, with evidence, why the economies of scale didn’t warrant a cut; The economies-of-scale criterion requires evidence that scale benefits were passed to investors. Comparable market rates does similar work: a fund charging materially above the market for similar funds has to justify the premium with evidence of better service or performance, not assert it. Comparable services asks whether the manager charges its own fund investors more than a segregated-mandate client for substantially the same management, a comparison many houses find uncomfortable. The share-class criterion is direct: it asks whether investors sit in expensive legacy classes while a cheaper class exists, and it has driven investors into lower-cost classes across the industry.

These criteria call for either a fee that tracks the economics down or an evidenced justification for holding it where it is, and flat fees without that justification are increasingly challenged in supervision. Across the UK market the visible result has been sustained downward pressure on active-fund fees and a steady shift of assets into cheaper share classes and passive products. The assessment of value is the mechanism enforcing that shift.

The FCA hasn’t left the assessment to firms’ good intentions. Its multi-firm reviews of how managers run the assessment keep finding the same weakness, and it’s now the supervisory focus: independent directors giving too little challenge to fee decisions, signing off static fees despite material changes in cost or scale, and assessments that read as boilerplate rather than analysis. The reviews found that independent directors often don’t challenge the assessment.

An assessment that concludes the fees were fair without itemising the cost drivers, without explaining any divergence from comparable rates, and without showing the independent directors’ challenge, reads as a formality rather than a defence. A recorded fee decision answers a supervisor’s questions; an unevidenced assertion invites them.

A defensible assessment shares a few features.

The cost analysis is firm-specific and granular. It itemises the actual cost drivers of running the fund instead of restating a generic narrative, so the economies-of-scale and manager-cost criteria get answered with the firm’s own numbers. A templated cost section carried forward with minor annual edits is the most common weak point.

The independent challenge is real and recorded. The directors required by COLL 6.6.25R are shown to have interrogated the fee decisions, with their questions and any dissent minuted, because the FCA’s concern is exactly that the challenge is nominal. Minutes should record the challenge and any dissent, not just approval.

The economic criteria are each evidenced. Economies of scale, comparable market rates, comparable services and share-class appropriateness are answered with the scale curve, the market benchmark, the segregated-mandate comparison and the share-class analysis. These are the criteria that move fees, and the ones a supervisor will test.

Share classes are kept in order. The manager can show that investors aren’t stranded in expensive legacy classes, and that where a cheaper class exists they’ve been moved or the reason they haven’t has been recorded. This is both a COLL criterion and a Consumer Duty good-faith point.

The assessment reconciles to the Consumer Duty board report. The fair-value story in the assessment of value lines up with the price-and-value story in the firm’s annual Consumer Duty outcomes report, so the value assessment and the PROD assessment tell one story.

Remediation actually happens. Where a fund hasn’t delivered value the rule requires action, and the FCA looks for evidence the action was taken and tracked, not just identified. Where poor value is flagged year after year and nothing is done, the record itself shows the assessment isn’t doing its job.

The seven criteria, the evidence each needs, and the pressure each puts on the fee:

How an assessment of value matures, area by area:

This insight is provided for general informational purposes only and doesn’t constitute legal, investment, or regulatory advice.