Councils move against hidden costs

Micha Theiner

Christopher Sier: Ardent campaigner for pension cost transparency who believes councils could save millions

Jeff Houston, head of pensions at the LGA which represents 435 local authorities across the UK, said it will act if the Investment Association’s new independent advisory task force, which was set up in June to deliver a new costs disclosure standard, drags its heels.

The LGA is on the point of consulting with its members over the plan, added Houston.

Its decision follows an initiative by the £11.5 billion West Midlands pension scheme to assess hidden costs, which helped the scheme save £11 million in the year to March 2016.

Geik Drever, strategic director at West Midlands, said: “Savings have arisen due to the fund’s proactive view and restructuring of its investment assets.”

Total costs were £69.8 million over 2015-16 compared with £81.2 million the year before, she said. The West Midlands scheme is seeking further savings, and plans to benchmark its costs against other schemes.

Chris Sier, a long-standing campaigner for cost transparency, believes local authorities could save a total of £200 million a year by measuring costs and extracting savings from managers. He has produced a template that outlines the costs he wants laid bare.

LGA’s Houston said: “We have decided to conduct a survey of members, with a view to adopting a cost template by the autumn. We want to work with the Investment Association to review disclosure.”

He has also taken soundings from private sector schemes and the Department for Work and Pensions. He also serves on the Investment Association advisory board.

However, he confirmed the LGA could press ahead on its own if Investment Association deliberations drag out: “We are prepared to use a template of our own, using the model suggested by Chris Sier. We also want to see a third-party audit of cost disclosures by managers.”

Houston added: “We would not want to put together a league table, although I would expect different authorities to compare notes.”

The LGA wants cost disclosure in place long before council schemes are due to produce further efficiencies by merging or pooling assets from 2018.

However, he expects the LGA to wait for the Financial Conduct Authority to publish its review of the sector later this year.

The Investment Association confirmed the negotiations of the advisory board were continuing. A person familiar with its position said he was optimistic of striking the right deal.

Sier, former managing director of Dutch custodian Kas Bank, is co-founder of the Transparency Task Force lobby group, which has been in touch with the FCA. His template draws on a model used in the Netherlands.

He wants to see the disclosure of portfolio turnover, and bid/offer spreads and foreign exchange costs.

Sier has voiced fears about the way private equity, and other, managers charge performance fees against portfolio values rather than through invoices. He believes the absence of invoices makes it hard for pension schemes to track the costs managers have incurred, leading to a risk of over-charging.

He is also concerned that the Investment Association was seeking to delay disclosure by creating an independent board.

Sier said: “Given the board was meant to be open and transparent, on arrival members were told meetings would be secret and closed. It is tainting the name of transparency. How can we rebuild trust in financial services when once again facts and debate are hidden behind an industry wall of silence?”

Sier said he was unhappy TTF chairman Andy Agathangelou agreed to serve on the Investment Association board in such circumstances. Agathangelou agreed he was “uncomfortable” with its confidentiality.

But he said he was making progress in achieving greater openness, and stressed he wanted the TTF to work with the Investment Association committee to achieve a pro-consumer agenda.

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