On Monday (March 27), the asset management trade body published a standardised framework and consultation for how fund groups should disclose and breakdown charges to investors. The IA said this stemmed from work by its Independent Advisory Board - and group of pension funds and consumer groups - and was designed to reflect the direction travel by regulators.
While the move towards greater transparency has been broadly praised, the technical process of how and whether to include implicit costs within the disclosure code is one area that caused debate.
Rory Maguire, managing director of Fundhouse, said he expected some IA members to push back arguing publishing all cost information and specifically implicit costs could mislead investors.
But he said: “Even if at times it might put investors off, it should still be put out there because it is factual and the industry cannot hide behind the claim that it will be misleading. If people do not have all of the facts then they will not be able to make the right decision [for themselves or their clients]."
Daniel Godfrey, former chief executive of the IA, said the trade body was doing the right thing getting ahead, given regulatory-led disclosure rules could sometimes be "unhelpful".
He said: “We [as an industry] must think about what disclosures we can provide, whether those disclosures are required by regulation or not, which gives consumers the information that they need.
“Ultimately the objective is to say that if the regulatory disclosure rules are not sufficient then as an industry we should be willing to do something different.”
While reaction was broadly positive to the IA's work, Mr Maguire warned investors to remain cautious. The concept of cost disclosures has been touted by the IA for sometime, with transparency and simplicity of costs making up one of its 'statement of principles' for members. However, it was disagreements between IA members and management over the these principles that led to Mr Godfrey's departure in 2015, and the principles eventually becoming non-binding.
Mr Maguire said although the move towards greater transparency should be welcomed, people must remember the IA exists to support its members, rather than consumers.
“We need to be sceptical of the IA, which has an agenda to support asset managers as a whole, said Mr Maguire. “As with any self-regulators you need to see there is an agenda behind it.”
Jonathan Lipkin, head of public policy at the Investment Association, said given different regulatory work on charges disclosure was ongoing, the IA wanted to create something that brought all the aspects together, but remained flexible enough to adapt to final decisions by European and UK bodies.
“This whole framework is about implementing - in a consistent way as possible - different regulatory requirements. What we're trying to do is implement the letter and the spirit of the regulation - and there are some things in the code that go beyond regulatory requirements.”
Mr Lipkin admitted the issue of how to disclose implicit costs was a “real sticking point”, but said the framework would eventually incorporate whichever definition was decided on by regulators, despite the IA having its own view on the best method.
"This is a genuine consultation," he added. "The message from us is that it is essential for the industry not to impose a framework on clients and stakeholders."
Mr Godfrey added: "This disclosure code has been in gestation for a long time so my guess is it will command a broad range of support across the industry, consumer groups and regulators."
The breaking down of OCFs:
Fundhouse’s Rory Maguire said one issue he would take up with the IA was its disclosure of the components of the ongoing charges figure (OCF).
Mr Maguire said the draft disclosure code document did not do enough to separate out the components of the OCF, which he said was a problem because different firms bundle different charges into their OCFs.
He said: “Two funds may both have an AMC of 0.5 per cent, but one may have an OCF of 0.55 per cent and the other will have an OCF of 0.75 per cent.
“Part of the reason is that some managers charge for administration [within the OCF] and others do not.”
The IA’s Jonathan Lipkin said the cost disclosure code merely reflected the current definition of the OCF, but said it could be adapted depending on the outcome of the FCA’s market study, which will include an assessment of the relevance and use of the OCF.
