The importance of managers coming clean on their transaction costs was supported in a Financial Conduct Authority report on November 18.
Sier told a meeting of the Transparency Task Force on December 14: “Our mechanism will be rolled out to every pension scheme, if they want to play.”
Speaking afterwards, he said the LGPS and the Local Government Association, which represents the UK’s councils, had asked asset managers to put their cost data on the template by the 2017-18 financial year, or 2016-17, if possible.
He said nearly thirty managers have been asked for data, and agreed to supply it, knowing this would help them win, or retain, council business after the forthcoming merger of their pension-fund assets.
In due course, the data could underpin disclosure standards across the UK. Sier said the asset managers who supplied them with sufficient data in the right format would receive kitemarks to reassure their clients. He wants the data to be managed for zero cost and offered as a template abroad, in due course.
Sier brought the problem of hidden costs to the attention of the UK Government in 2011. His findings informed the Financial Conduct Authority’s report on asset management, critical of the failure of managers to disclose hidden transaction costs, alongside other charges.
Robin Finer, head of the competition department at the FCA said manager operating margins average 35%, which does not provide them with enough incentive to get to grips with transction costs.
Managers win business through their performance, rather than the size of their fee, reducing the incentive still further. The FCA has also criticised the quality of surveillance by investment consultants.
Sier said his template included share turnover data so clients could check whether managers were churning their portfolios. FCA data suggests the product margins on final salary institutional products are ahead of other institutional and retail products. One factor could be their greater use of alternative funds, although it could result from old-fashioned contracts, hidden fees and poor supervision.
Sier said: “The FCA report is seismic. It’s great, great, great, fantastic!”
A former police officer, he is infuriated at evidence of wrongdoing. He said: “I bury myself in research and then get angry when I find something I don’t like.” He says he is less angry, though still wary, now the industry has grasped the importance of reform, although he sees no reason why fund managers should charge more than 35 basis points.
He argues: “I did some work on managers for the World Bank, and that came out as a figure which still gave them a perfectly good margin.”
Sier’s template has also been adopted by the Investment Association, the UK fund managers’ trade body. Sier said one reason he decided to attend the Transparency seminar was when he learned that Campbell Fleming, global head of distribution at Aberdeen Asset Management, was its host.
He said: “He really used to irritate me. He would never engage on this subject. Now he’s done a 180 degree turn.”
Fleming said: “We’re big supporters of learning what firms charge.” But he warned the push back on costs should undermine the sector: “Businesses are expensive to run. Long-term players need to be well-capitalised. You need a lot of capital – as we know only too well.”
Sier agreed that the £7 trillion UK asset management sector played a big role in the financial community, although he stressed the importance of fee restraint, as well efforts to bring hidden costs into the open, and control them.
He said new technology can be used to develop platforms which can reduce the need for intermediaries. Sier is a director of research firm Finexus, and a former UK managing director at Kas Bank. He has just been appointed Fintech envoy to the Government’s Northern Powerhouse initiative.