Lifting the curtain on transaction costs
Editorial: The Financial Conduct Authority’s proposals for transaction cost disclosure have been welcomed across the industry, but confusion has crept in over how this will affect trust-based schemes.
The proposals make it clear that the FCA wants to push for greater transparency in transaction costs.
The pensions industry is generally in favour of implementing such measures, as is the Investment Association in its official statements.
What is less clear is who the proposed requirements will apply to. If it is contract-based defined contribution schemes only, what about trust-based schemes? Surely asset managers, regulated by the FCA, also manage trust money?
Illustration by Ben Jennings
Theory and practice
The FCA is passing the buck to the Department for Work and Pensions. “The Pensions Act 2014 requires the FCA and DWP to require the disclosure and publication of transaction cost information and administration charges. We are responsible for the rules to implement these measures for the firms that we regulate, and the DWP will be responsible for regulations in respect of occupational schemes,” it said.
By not admitting to its power over asset managers, who form part of the delivery chain in a trust-based environment, the FCA might be being “a little bit political”, said PTL managing director Richard Butcher.
The vast majority of defined benefit and DC trust-based assets are invested with regulated asset managers, so the FCA does have jurisdiction over the asset managers that are providing the funds into those schemes.
As trustees are required to ask for information on transaction costs, and as asset managers can be made to provide it, "all of the component parts are there", according to Butcher.
Job-sharing
The Pensions Regulator is of the same view – that as the FCA proposals apply to asset managers, they will be relevant for trust-based schemes, tweeted the Financial Times' pensions correspondent, Josephine Cumbo.
FCA lights the way on transparency
‘A big flashing neon light’ marking the direction of travel on transparency has been lit by the Financial Conduct Authority with its proposal to make asset managers disclose transaction costs to defined contribution schemes.
It looks like the FCA has taken on some of the work of the DWP by trying to bring disclosure to trust-based schemes through the back door.
Whether the DWP will care, or even notice, is another matter; it might have bigger fish to fry.
Sandra Wolf is editor at Pensions Expert. You can follow her on Twitter @SandraCWK and the team @pensions_expert.
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