Asset managers investing money for defined contribution (DC) pension funds in the UK are to be forced to reveal transaction costs, else explain why they can’t.
The Financial Conduct Authority (FCA) launched a consultation yesterday aimed at standardising the disclosure of transaction costs, which the regulator said could save the industry £24 million (€27 million) over the next five years.
It comes at a time when there are calls for heightened transparency of fund running costs, with The Investment Association – the UK fund manager trade body – recently refuting claims that investment funds contained hidden fees that impact investors’ returns.
Currently, fund trustees and independent governance committees (IGCs) are required to report transactions costs so they can understand the value for money they and scheme members get from investment providers – yet asset managers are not required to provide full disclosure of these costs in a standardised form.
For consistency across the market, the FCA has proposed that the calculation uses a methodology for evaluating transaction costs, called the “slippage cost”. This compares the price at which a transaction was actually executed with the price when the order to transact entered the market.
The time an order enters the market should be captured by an order management system, the FCA said, and this time can then be used to identify the price of the asset.
The FCA wants asset managers to be able to categorise costs, which might include specific costs like taxes and securities lending.
Firms who are unable to provide transaction cost information for all of the assets in a scheme will have to disclose this clearly to the governance body with an explanation of why it has not been possible to provide the information.
The European Union’s regulation on key information documents for packaged retail and insurance-based investment products, known as Priips, establishes standard disclosure obligations, including a requirement to disclose transaction costs for products in its scope, and the FCA said its consultation for UK DC scheme was written with this in mind.
About half of the top 60 UK asset managers told the regulator
that they manage assets for DC pension schemes. Of these, the top ten asset managers manage around 90% of all DC assets.
The consultation is open until January 4, 2017.
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