UK regulator outlines new costs and charges template for fund managers in transparency push

FCA working group starts industry consultation for voluntary initiative.

The UK Financial Conduct Authority’s (FCA) Institutional Disclosure Working Group (IDWG) today (Feb 8) presented proposals to UK investors for detailed disclosure of asset management costs and charges across asset classes that supporters believe could bring needed reporting transparency. The meeting in London was the first in a set of consultations with investors about the IDWG’s new disclosure framework, which in the first instance aims to give trustees of defined benefit pension schemes a definitive set of base costs, before doing the same for sponsors of defined contribution pension plans. The IDWG was set up as part of the FCA’s Asset Management Market Study, which delivered its final report in June 2017 and was highly critical of the way costs are presented and charged to both institutional and retail investors. Its aim is to promote consistent disclosure to institutional investors via a standardized reporting template, which contains separate accounting lines for ‘the lowest possible level of cost’ for securities trading, asset management services, pension fund costs and then outlining full charging accountability to the end beneficiary. The IDWG will make a final report to the FCA by July 31.
The costs template builds on work carried out by the Local Government Pension Scheme (LGPS) Advisory Board, which already has a detailed charges template that it will use for reporting to the 8 pension pools that run assets of £217bn (€250.8bn) on behalf of the UK’s 89 local government pension funds: see RI article. to the new template will be voluntary, unlike mandatory cost reporting systems that exist in the Netherlands and Australia.
Supporters hope the new costs template will be taken up by pension fund trustees as their baseline charges comparator for investment services.
At the securities level, the template will include cost data for asset classes including equities, fixed income, foreign exchange, private equity, derivatives and property. The UK costs template will take into account cost transparency developments such as the recent reporting requirements presented under MiFID II, as well as those outlined in the PRIIPs, and AIFMD regulations. The IDWG comprises about 20 financial services professionals, including members and observers from the Department for Work and Pension, the Organisation for Economic Co-Operation and Development, the Trades Union Congress and the CFA Institute. It is chaired by Dr Christopher Sier, Professor of Practice at Newcastle University Business School and an expert in pension scheme costs and charges who worked closely with the LGPS in developing their template. The co-deputy Chairs of the working group are Jeff Houston, Head of Pensions at the Local Government Association and Gregg McClymont, Retirement Savings Head at Aberdeen Standard Investments, and a former MP and former Shadow Pensions Minister.