1) The document outlines the key points of the Value For Money (VfM) regime for Authorised Fund Managers (AFMs) in the UK, including conducting annual assessments of each fund to determine if charges are justified based on value delivered to investors. 2) AFMs must consider a minimum of 7 factors in their assessments, such as performance, costs, economies of scale, and comparable market rates. 3) The results of the VfM assessments must be reported annually, including conclusions on each minimum consideration, steps taken, and an explanation if charges are found to not be justified.

1. Value For Money
Overview of PS 18/8
16 April 2018
Michael Booth
Regulatory Director, ES / Consulting

2. Key points
 Responsibility allocated to Approved Person
 NURS / UCITS (COLL 6.6.20 R(1)
 QIS (COLL 8.5.17 R (1))
 Deadline
 30 Sept 2019 – assessment / conclusion / action
 30 Sept 2019 – accounting periods on or after
 Steps
1. Assess the VfM
2. Conclude that each fund offers good VfM or take corrective
action if it does not
3. Explain the assessment annually in a report made available to
the public

3. The VfM regime
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There is an existing duty on AFMs to act in the best interests of fund investors. This derives in part from
requirements of the Undertakings for Collective Investment in Transferable Securities (UCITS) and the
Alternative Investment Fund Managers (AIFM) Directives. In our view, as part of fulfilling this duty, AFMs
should consider whether the charges taken from a fund are justified in the context of the overall service
and value they provide through that fund. This includes both charges that are usually paid directly to
third parties and the management fees that AFMs set for themselves. We believe this is particularly
important as AFMs are the agents of their investors – they act on their behalf and owe them duties
Best interests
Overarching
VfM
assessment
At least 7 minimum
considerations
Take action Report
Context

4. The VfM regime
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Context
Key points
 Legal
 Agency
 Philosophical
 Beauty is in the eye of the beholder
 Investors consistently make irrational choices even when presented with the right
information
 Fund objectives
 Tracker / beat a benchmark
 Uncorrelated
 Unspecified or general objective
 Asset classes (e.g. equity, fixed income, real estate, etc)

5. The VfM regime
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Key points
 An authorised fund manager must conduct an assessment at least annually for each scheme
it manages of whether the payments out of scheme property set out in the prospectus
are justified in the context of the overall value delivered to unitholders
 In carrying out the assessment the AFM must, separately for each class of units in a
scheme, consider at least the matters set out in COLL 6.6.21R (Table: minimum
considerations – assessment of value).
 Need to consider context and construct the argument
 Would always need to be relative
 Need to consider opportunity costs
 Doesn’t talk about implicit trading costs
Value
generated for
investors

6. Minimum considerations
…are the FCA’s expectations?
Eversheds Sutherland | Value For Money | 16 April 2018 6
Quality of service a
Performance
AFM costs - general
Economies of scale
Comparable market rates
Comparable services
Classes of units
Quality of service
 Service delivered to unit holders
 Information about performance
 portfolio level information
 speed of redemptions
 liquidity level and NAV pricing
 help with completing forms
 Investor days, minutes of investment meetings
 Performance comparable to peers - relative benchmark
The AFM should have regard to the quality of service it provides and the quality of
service provided by any person to which any aspect of the scheme’s management
has been delegated or which provides services to the AFM or on its
behalf…services provided directly to unitholders but may include services
undertaken on their behalf by the AFM, such as consideration of the quality of the
investment process used to make decisions about managing the scheme
property...
The range and quality of services provided to unitholders.

7. Minimum considerations
…are the FCA’s expectations?
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Quality of service a
Performance a
AFM costs - general
Economies of scale
Comparable market rates
Comparable services
Classes of units
Performance
 Not including implicit costs of trading
 Including all prospectus charges
 Looking at gross returns
 Doesn’t absolve you from all sins
 Relevant against comparison costs
The performance of the scheme, after deduction of all payments out of scheme property as set
out in the prospectus (in this rule, COLL 6.6.23E and COLL 8.5.19E, “charges”). Performance
should be considered over an appropriate timescale having regard to the scheme’s investment
objectives, policy and strategy.

8. Minimum considerations
…are the FCA’s expectations?
Eversheds Sutherland | Value For Money | 16 April 2018 8
Quality of service a
Performance a
AFM costs - general a
Economies of scale a
Comparable market rates a
Comparable services a
Classes of units a
AFM costs - general
 Talks about AFM comparing charges with costs
 Implies an internal assessment of profit margin?!
 For a firm that delegates the portfolio management what
is the margin retained?
 No piercing the corporate vale (but see earlier)
In relation to each charge, the cost of providing the service to which the charge relates, and
when money is paid directly to associates or external parties, the cost is the amount paid to
that person.

9. Minimum considerations
…are the FCA’s expectations?
Eversheds Sutherland | Value For Money | 16 April 2018 9
Quality of service a
Performance a
AFM costs - general a
Economies of scale a
Comparable market rates a
Comparable services a
Classes of units a
Economies of scale
 about own management fees
 but also get economy of scale costs from administrators
and depositories (should this be included??)
 Initial mandate may need revisiting
Whether the AFM is able to achieve savings and benefits from economies of scale, relating to
the direct and indirect costs of managing the scheme property and taking into account the
value of the scheme property and whether it has grown or contracted in size as a result of the
sale and redemption of units.

10. Minimum considerations
…are the FCA’s expectations?
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Quality of service a
Performance a
AFM costs - general a
Economies of scale a
Comparable market rates a
Comparable services a
Classes of units a
Comparable market rates
 See below
In relation to each service, the market rate for any comparable service provided:
- by the AFM; or
- to the AFM or on its behalf, including by a person to which any aspect of the scheme’s
management has been delegated.

11. Minimum considerations
…are the FCA’s expectations?
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Quality of service a
Performance a
AFM costs - general a
Economies of scale a
Comparable market rates a
Comparable services a
Classes of units a
Comparable services
 Most favoured nation type clause, but needs to be
comparable
In relation to each separate charge, the AFM’s charges and those of its associates for
comparable services provided to clients, including for institutional mandates of a comparable
size and having similar investment objectives and policies.

12. Minimum considerations
…are the FCA’s expectations?
Eversheds Sutherland | Value For Money | 16 April 2018 12
Quality of service a
Performance a
AFM costs - general a
Economies of scale a
Comparable market rates a
Comparable services a
Classes of units a
Classes of units
 See below
Whether it is appropriate for unitholders to hold units in classes subject to higher charges
than those applying to other classes of the same scheme with substantially similar rights.

13. Reporting
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An annual long report
 A separate discussion and conclusion for the matters covered in each
paragraph of COLL 6.6.21R, and for each other matter that formed
part of the assessment, covering the considerations taken into account
in the assessment, a summary of its findings and the steps
undertaken as part of or as a consequence of the assessment
 An explanation for any case in which benefits from economies of
scale that were identified in the assessment have not been passed
on to unitholders
 An explanation for any case in which unitholders hold units in a class
that is subject to higher charges than those applying to other
classes of the same scheme with substantially similar rights

14. Reporting
…cont.
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 The conclusion of the authorised fund manager’s assessment of
whether the charges are justified in the context of the
overall value delivered to the unitholders in the scheme
 If the assessment has identified that the charges are not
justified in the context of the overall value delivered to the
unitholders, a clear explanation of what action has been
or will be taken to address the situation.

15. Reporting
…cont.
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 An AFM need not include the statement required by (8) in its
annual long report if it makes the statement available to
unitholders annually in a composite report covering two or
more of the authorised funds it manages, published in the
same manner as the annual long report.