Aegon urges FCA to align transaction cost rules

Transaction costs occur when an investment manager buys or sells a stock within a fund.

Back in October, the Financial Conduct Authority launched a consultation on the proposed rules for calculating and disclosing transaction costs of funds used for workplace pensions.

However, Aegon’s pensions director Steven Cameron said it was “critical” this methodology worked across all funds, including those which are not used as part of a pension.

He said the decisions from this consultation need to have wider implications outside just pension funds, aligning with the FCA’s Asset Management Market study.

 We absolutely mustn’t end up in a situation where transaction costs for non-pension funds are calculated on a different basis Steven Cameron

The FCA acknowledged the pension paper in its asset management report and said it had heard that getting transaction cost information “had been difficult”.

But the study does not set out how this problem could be resolved for non-pension funds.

The paper did state that future regulation, which sets disclosure requirements for investment products other than pensions, will form part of the Priips key information document when it comes into effect on 1 January 2018.

Mr Cameron said these regulations, which ask fund managers to disclose transaction charges on a standardised basis, are “long overdue”.

But he suggested more guidance is needed to ensure this is carried out consistently across all funds.

As part of its asset management study, the FCA proposed fund managers publish an ‘all in’ fund charge, including transaction costs, which industry professionals have said would make pricing structures less confusing. 

Aegon’s pensions director said: “We absolutely mustn’t end up in a situation where transaction costs for non-pension funds are calculated on a different basis.”

He said having different methodologies for different fund types could potentially create confusion in the industry, pointing out, for example, that investors might think the charges for funds in Isas and pensions are comparable when they are not.

“We are calling on the FCA to join up this consultation with its asset management report and take care not to make a decision on pension funds which could then be challenged when they look at transaction costs more generally later down the line.”

Mr Cameron also pointed to the controversy around transaction costs, with some claiming large costs are being hidden from customers. 

He added: “We need to arrive at a standard basis across all funds to close down these claims once and for all.”

Marvin Evans, principal of Old Bank Wealth Management, said it makes sense for there to be a standard formula for disclosing transactions costs in order to make it easier for consumers to compare.

"It makes sense to equalise it across the whole board; why should pension funds be any different from non-pension funds?"

However, he questioned the extent to which investors actually get down to the “nitty gritty” costs underlying the overall fee, saying advisers will only tend to look at a fund’s ongoing charge and performance.

Blair Cann, senior partner and adviser for M Thurlow & Co, said the main issue is the ease with which charges can be compared, which he argued was not necessarily an easy task at the moment.

“If some form of standardisation of costs is being mooted, then I guess this would have advantages,” he said.

Yet he echoed Mr Evans by saying there are factors more important than charges, including the performance, fund manager, and relevance of the fund objectives to client’s needs.

“Overall the FCA presumably thinks this is important, but most of us would probably suggest there are other areas it should be giving priority.”