IMA attacks Labour's buy-side hidden trading cost claims
UK trade body the
Investment Management Association (IMA) has rejected claims that opaque costs
and transaction fees associated with fund investment are too high and eating
into investor returns.
The buy-side lobby
group, whose members manage £3.9 trillion in investments, was responding
to a policy review document released by the UK’s opposition Labour party that
criticised an alleged lack of transparency over costs and charges associated
with fund investment and a recent amendment to MiFID II made by Conservative
MEP Kay Swinburne.
document sets out the party’s
political agenda ahead of the October launch of an auto-enrolment system in the country – a UK
law that compels employers to enrol workers in workplace pension schemes.
is a lack of transparency in the system,” read the Labour document, pointing
out fund managers typically only disclose an annual management charge that
can comprise less that a third of total investment costs. “Some pension
providers do not provide savers with full and clear information in a simple
to what it termed “irresponsible scaremongering” by the Labour party, IMA CEO
Richard Saunders said there was no evidence undisclosed costs were causing
investors to lose out.
Transaction cost guidance
added the IMA had recently updated its guidance on how the UK buy-side
should report transaction costs to their clients, which included additional
disclosures on portfolio transaction costs, expressed as a three-year average
for broker commissions and transfer taxes such as UK stamp duty.
Europe, commissions are based on the value of each trade and are variable,
compared to the US, where broker charges are typically expressed as cents per
rate a European buy-side firm pays a broker depends on factors such as
liquidity and the extent to which a trade will enhance a portfolio, which can
make bundling them together with transaction costs misleading,
according to the IMA.
Steven Wood, founder of Global Buy-Side Trading Consultants and former global
head of trading at Schroder Investment Management, said in the UK the rules introduced by the Financial Services Authority in 2006 follow
a report on institutional investment by Labour's Lord Paul Myners in 2001 and offer adequate
transparency on commission costs.
“The breakdown of costs under the 2006 FSA rules was a
dramatic step forward in clarifying how commissions are used,” he said. “This
process is now very transparent. The fee structure associated with different
funds has to be transparent as it is usually part of the buy-side’s sales pitch
to attract investors.”
The 2006 rules
required institutional investors to separate research and execution costs
charged to them by brokers and report them back to clients.
Swinburne, a member of the European Parliament’s Economic and Monetary Affairs
Committee, tabled an amendment to MiFID II in May which stated the
marketing and advertising of funds should include a ‘total provider cost’ (TPC)
and a ‘total investment cost’.
Swinburne’s amendment, TPC should combine the annual management charge of a
fund, custody and administrative costs, performance fees and dealing costs
based on the last 12 months and be expressed as the portfolio turnover rate
multiplied by the full cost of buying and selling underlying assets.
spokesperson in Swinburne's office said the amendment was designed to
allow investors to better compare the different costs associated with funds
across European member states.
Wood recognised this would probably be an ideal situation for regulators, he
cast doubt over the ability to achieve it in practice.
large institutional clients negotiate their own fees with asset managers, which
can be based on different models, such as profit sharing,” he said. “Fees
differ per product and per client, so the disclosure of this breaches client