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Experts urge FCA to go further on pension fund transaction cost disclosure


Experts have welcomed the FCA’s attempts to force asset managers to disclose transaction costs to pension schemes that invest in their funds, but have urged the regulator to conduct further work on transparency to customers and nuances in fund arrangements.

The regulator began consulting in October on plans to to “place a duty on asset managers to disclose aggregate transaction costs to pension schemes that, directly or indirectly, invest in their funds”.

The consultation closed yesterday, and is a bid to make sure independent governance committees and trustees get full information about transaction costs in a standardised form.

IGCs and trustees do currently have to report on transaction costs, but asset managers do not have to provide full disclosure of these costs in a standardised form.

The Consulting Consortium managing director of advisory services Andy Sutherland says that while giving IGCs greater powers to hold providers to account was a positive step, improved transparency needed to make its way through to consumers.

Sutherland says: “The proposed measures will ensure workplace pension providers have a clear methodology to determine value for money. However, they fall short of providing complete transparency around transaction costs in the absence of proposals to address concerns around customer-facing disclosure and consumer engagement.”

“While the FCA’s latest proposals take into account the importance of a standardised approach to calculating value for money, it fails to address issues around lack of clarity in customer-facing disclosure or improving the levels of member engagement with their schemes. Concerns about levels of consumer engagement and disclosure within the wider financial services sector have been voiced previously by the regulator, and it wouldn’t come as a surprise if this was its next area of focus within workplace defined benefit pensions.”

Regulations “long overdue” 

Aegon pensions director Steven Cameron says fund transaction cost regulations are “long overdue”.

However, he says that nuances around cost calculations, for example where ‘funds of funds’ are used, also need to be accounted for.

“The FCA recognises that many workplace pensions use a fund of funds arrangement as their investment default. It proposes building a transaction cost figure from the underlying funds, adding in additional transaction costs arising from changing the allocations between funds. While the principle looks sound, we believe more guidance may be needed if IGCs are to have confidence calculations are being carried out consistently.”

He adds that the disclosure measure must dovetail with any potential all-in charge that could be introduced by the FCA as part of its review of the asset management sector.

“Decisions the FCA takes from this consultation need to allow for wider implications. While this consultation relates specifically to workplace pension funds, the FCA’s asset management market study may require fund managers to publish an all-in fund charge including transaction costs and we absolutely mustn’t end up in a situation where transaction costs for non-pension funds are calculated on a different basis.”



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