In a consultation opened on October 5, the UK’s Financial Conduct Authority said it wanted to “place a duty” on investment firms to disclose aggregate costs to pension clients that allocate money directly or indirectly to their funds.
The FCA is proposing that asset managers provide a breakdown of transaction costs, on request, into categories including taxes and securities lending costs and slippage costs, which are the difference between what a trader expects to pay for a trade and the actual price at which it is executed.
Asset managers are currently not required to provide full disclosure of transaction costs to pension funds in a standardised form, even though independent governance committees of pension schemes and their trustees are required to request and report on them.
Christopher Woolard, executive director of strategy and competition at the FCA, said in a statement: “The proposals we are announcing today will allow independent governance committees to see fully the transaction costs that their funds pay and enable them to make better decisions about how they get value for money for their members.”
The issue of fee transparency in the UK investment sector has been in the spotlight over the past 12 months, with the FCA also conducting a review into value, competition and efficiency in the broader asset management sector.
Flames were fanned in August when industry trade body the Investment Association published a report describing hidden costs as the “Loch Ness Monster” of investments. It said there was “zero evidence” that returns were affected by undisclosed fees.
Jonathan Lipkin, director of public policy at the IA, which represents firms managing about £5.7 trillion, said in a statement that the industry is “committed to introducing full charges and cost disclosure”, citing the development of a new template for Local Government Pension Scheme reporting.
He said: “This morning’s consultation provides clarity on FCA thinking regarding the workplace pensions market. Our goal here is consistent and complete reporting for all client groups, implementing both UK and EU regulatory change.”
Daniel Godfrey, the former chief executive of the IA, who was forced out of his position a year ago amid strategic differences with some of the trade body’s big member firms and is now a consultant to the FCA, said: “I absolutely support the FCA in ensuring this is an objective and I think the core elements are 100% right for people working in pension funds who have been very frustrated at their inability to get to the bottom of costs.”
The FCA is expected to publish the interim report on its asset management market review in November.
Andy Agathangelou, founding chairman of the Transparency Task Force, a lobby group of industry executives set up in 2015, told FN: “The FCA is doing a helpful job here in driving through exactly the type of change that needs to take place. We need to get to a point where the consumer can easily consider, compare and choose between freely available information.”
He added: “I would take this [today’s consultation] as proof that the FCA are serious about the asset management study they are involved in.”
The FCA’s consultation will run until January 4.