'Patchwork quilt' of solutions threatens drive for transparency
Regulators and consumer groups have been warned against installing a “patchwork quilt” of solutions to increase transparency in asset management, as remedies to hidden charges within funds begin to emerge.
With the interim report of the Financial Conduct Authority’s asset management market review due by the end of the year, and calls for the Work and Pensions Committee to open a new inquiry into charge transparency, pressure is mounting on asset managers to improve disclosure.
Meanwhile the Pensions Regulator stressed the importance of trustees showing their attempts to retrieve information from managers in their chairs' statements.
But Margaret Snowdon, chair of the Pensions Administration Standards Association, this week told a Transparency Strategy Summit at the House of Commons that the fragmented nature of the various efforts threatens to derail the overall project.
Trustees need to explain what they have done to try and get hold of that information, and if they’ve been unsuccessful, what do they plan to do about it in the future
“I’m very concerned that what we end up with is some of these different [solutions] that are being worked on that never meet up in the middle,” she said.
“It gives the opportunity for self-interest. Inevitably people decide that they’re going to do something because it makes them look good,” she continued. “It also confuses customers because they don’t know what rules apply to them.”
Snowdon said a wide-ranging protocol or code of practice would ensure nobody could shirk responsibility: “It’s better to have something that’s comprehensive, that’s market-wide.”
To regulate or not to regulate?
Self-regulation of investment governance and asset management via protocols and codes is a concept which has divided industry figures.
On the one hand, it has the important support of Investment Association chair Helena Morrissey.
Former IA chief executive Daniel Godfrey’s ‘statement of principles’ was itself a code of conduct, but met with fierce opposition from funds who threatened to rescind their membership, and led to Godfrey being unceremoniously ousted.
Morrissey said previous conversations with asset managers had revealed “not so much a lack of willingness to subscribe to principles but a fear of litigation or regulatory pressure if [guidelines] were open and subjective”.
Governance is key as dispute rocks asset management industry
Research suggesting that hidden fund fees are the “Loch Ness monster of investments” has sparked the latest round of a bitter row between the Investment Association and pro-transparency groups.
Instead, she favoured self-regulation of the asset management industry via an “incredibly objective” calculation methodology.
But others were sceptical towards the efficacy of codes of conduct, a split which might be seen as evidence that what Snowdon termed the “patchwork quilt” of pro-transparency drives is already emerging.
“The problem with codes of conduct is always how do we enforce them,” said Con Keating, head of research at covenant insurer BrightonRock Group.
Meanwhile Andy Agathangelou, founder of the Transparency Task Force, has asked stakeholders for views on triggering a fresh Work and Pensions Committee inquiry into cost transparency in asset management, and on compiling a global transparency index.
Tough stance needed from trustees
Whether the approach to boosting transparency has become fractured or not, leading figures in the industry are clear on the extent of the problem faced.
“As we know, transparency and the ability for [trustees] to get their hands on the information they might need is not optimal,” said Louise Sivyer, policy lead at the regulator.
She said that while levels of resources and expertise vary between trustee boards, the new defined contribution code specifies a minimum governance requirement which all trustees should be aware of.
Referring to the disclosure of transaction costs in chairs' statements, she said: “Trustees need to disclose in so far as they are able, and if they can’t disclose then they need to explain what they have done to try and get hold of that information; and if they’ve been unsuccessful, what do they plan to do about it in the future.”
Shirin Taghizadeh, head of pension charges at the Department for Work and Pensions, said the government would look to build on the progress made with the DC charge cap.
Daniel Godfrey, now an independent director and adviser working with Digital Moneybox and Big Issue Invest, said transparency issues may even extend past service charges into areas such as remuneration of managers.
“I’m aware that there are many funds in this country where the disclosed objectives for the fund and the remuneration principles for the fund manager running that fund are [not aligned],” he said.