Defined Contribution  

FCA forces managers to reveal costs to pension schemes

FCA forces managers to reveal costs to pension schemes

Asset managers will have to disclose total transaction costs to pension schemes that directly or indirectly invest in their funds, under new rules out today (20 September).

The Financial Conduct Authority will also require asset managers to provide information about administration charges, and a breakdown of the transaction costs, on request, with the total broken down into clear categories of costs.

This could include specific costs like taxes and securities lending fees.

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With effect from 3 January, when requested by a pension scheme firms must provide details of transaction costs calculated according to the ‘slippage cost’ methodology, information about administration charges and appropriate contextual information.

Where firms do not have this information, they must seek it from other firms, which, if FCA authorised, must provide the information.

The new rules will affect those who are involved in the defined contribution workplace pensions market. 

This includes those who provide services in that market, such as pension providers and asset managers, and governance bodies of pension schemes, such as trustees and independent governance committees.

It will also affect all members of workplace pension schemes subject to the new governance requirements, as the governance bodies responsible for overseeing their investments will get more information about transaction costs.

In its policy statement on the rule change the FCA stated it had received 43 written responses to its consultation, which ended on 4 January, including from industry bodies, firms, pension scheme governance bodies, consumer representatives and expert commentators. 

According to the FCA, there was widespread support for the regulator’s overall approach, namely placing a requirement on asset managers to respond to requests for information about transaction costs. 

Similarly the way in which the proposed rules would allow firms to make reasonable assumptions when amalgamating costs was broadly supported, although respondents noted some potential complexities.

The majority agreed the FCA should not seek to define a template for disclosing costs, although a small number of respondents felt that this was necessary.

The rule change is designed to make pension schemes more able to compare costs across fund managers that manage pension scheme members’ money.

“By setting out a methodology for calculating transaction costs in a consistent way, and by placing obligations on firms to respond to requests for information about costs, we are building the foundations that will enable the governance bodies of these schemes to meet their obligations to review and consider the value for money of transaction costs and administration charges,” the FCA’s policy statement PS17/20 stated.

“Beyond this, following our asset management market study, we have set in train a number of initiatives that will further enhance the ability of both governance bodies and consumers to obtain the information that they need, in a way that helps them to assess those managing money on their behalf.”

Andy Agathangelou, founding chair at the Transparency Task Force, said his team actively engaged with the FCA’s consultation team on this issue.