Henderson handed £1.9m FCA fine for fund failings

The FCA has fined Henderson Investment Funds Limited (HIFL) £1,867,900 for failing to fairly treat more than 4,500 retail investors in two of its funds.

In November 2011, HIFL’s appointed investment manager, Henderson Global Investors Limited (HGIL), decided to reduce the level of active management of two funds, the Henderson Japan Enhanced Equity Fund, and the Henderson North American Enhanced Equity Fund (Japan and North American Funds).

The subsequent treatment of retail investors in these funds was found to be substantially different from its treatment of the institutional investors in the same funds, and this was in contravention of Principle 6 of the FCA’s Principles for Business.

The FCA suggested HGIL had informed nearly all the institutional investors who were affected by this change, and offered to manage these two funds for those investors without charge. By contrast, HGIL had not communicated the change in investment strategy to any of the retail customers, either by amending the funds’ prospectus or otherwise.

This meant that for nearly five years, HGIL was charging the investors the same level of fees that it had before the decision was made, without providing the same level of active management.

HIFL charged investors a total of £1,784,465.32 more than if they had invested in a passive fund – but has now disclosed the matter to all affected customers, compensating them for the additional costs they incurred.

There were 4,713 direct retail investors, 75 intermediary companies with underlying non-retail investors and two institutional investors in the Japan and North American Funds affected by HGIL’s decision not to reduce their level of fees.

HIFL has agreed to resolve the matter and qualified for a 30% discount under the FCA’s executive settlement procedures, without which, the FCA would have imposed a greater financial penalty of £2,668,547.40.

FCA executive director of enforcement and market oversight, Mark Steward, said: “The FCA requires firms to treat all its customers fairly, not just some customers. In this case, retail investors paid fees for active investment management they did not receive.

“For retail clients, the Japan and North American Funds were in effect operating as ‘closet trackers’ as the fees charged to them were inappropriate given the diminished level of active management.

“The matter is aggravated by the length of time HIFL took to identify the harm being caused to the retail investors and to fix it.”

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