FCA works to protect investors during transitions

Speaking as the City watchdog issued a 10-page Thematic Review on Transition Management, Mr Adamson, the FCA’s director of supervision, said: “The FCA has seen a number of incidents that have raised questions about the role played by transition management providers.

“We have seen failures to manage conflicts of interest, poor governance and insufficient oversight.”

Transition management covers situations where an institutional investor such as a pension provider moves portfolios between managers or markets, often following a change of investment strategy.

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These institutions often bring in third parties to project manage a transition. According to the FCA, third parties move around £165bn worth of assets annually, with the five largest handling 68 per cent of transactions, which represents 80 per of the market by volume.

The review also highlighted several potential conflicts of interest, including in the misuse of information; principal trading, where the transitions manager acts as both agent and principal counterparty; and commission incentives for managers to opt not to transfer assets in specie.

Mr Adamson warned companies not to let systems and control risks pass “below the radar”.

He added: “Transition management often flies below the radar, but done properly [it] helps to ensure investors get the best returns on their assets.

“By taking a proactive look across the sector, we have acted to ensure standards are high and the consequences of failing to meet our expectations are clear.”

Nick Bamford, executive director for Cranleigh-based Informed Choice, said: “We are great believers in transparency. People should know what what they are paying for in their pension and to whom.

“In our work as intermediaries we have to be explicit about the charges we apply, and want to be able to describe accurately to the client the charges imposed by fund managers and platform providers.

“Now if you are a defined contribution pension member, investing into a UK equity fund with provider A, paying 1.75 AMC, and the trustees move you to a different provider using a transition manager, then you should be told exactly what the charge is.

“Consumers should not find out down the line that they have been subject to charges such as the ones the FCA found State Street to have imposed.”


In January, the FCA fined State Street £22.8m for charging clients substantial “concealed” mark-ups on some transitions in addition to the agreed fees.

Between June 2010 and September 2011 State Street’s transitions management business deliberately overcharged six clients a total of £12.23m, the FCA found.