PLSA Investment Conference 2018: Chris Sier, chair of the Financial Conduct Authority’s Institutional Disclosure Working Group, has called for the introduction of reforms promoting asset management transparency by the beginning of April.
The IDWG was established last year to encourage greater transparency over costs to institutional investors. It is developing a template that will increase investors’ understanding of asset management charges.
Speaking at the Pensions and Lifetime Savings Association’s Investment Conference, Sier said that he “would like to have something substantial released” at the end of the month, to coincide with the start of the financial year.
There isn’t a single asset manager out there that couldn’t get the data from their systems
Chris Sier, Institutional Discloure Working Group
Sier said that there is still work to be done over the granularity of data that will be required from asset managers.
The Local Government Pension Scheme advisory board, which supports best practice at LGPS level, has agreed to adopt the IDWG’s proposals.
Investors will rely upon good data from suppliers
The framework is designed to help investors understand what cost information they should ask for from their asset managers and suppliers.
The IDWG’s proposal will be broken down into a reference template, an account template and a user template.
Sier describes the reference template as “our lexicon of costs”. It will describe all possible costs that might impact institutional investors’ suppliers.
The account template will be filled out by suppliers, and institutional investors will receive the user template. “The user template is only as good as what is populated on the account template,” said Sier.
For the user template, the group has still to decide the appropriate summary fields for completion by a trustee for an institutional investor.
The template is good for asset managers
Sier claimed that asset managers have shown a willingness to engage positively with the IDWG’s work.
“The reason asset managers are engaged is because they recognise that this is an opportunity for them to present themselves as transparent, and therefore honest and trustworthy,” he said. “And also, because it’s just the right thing to do.”
Asset managers may harbour concerns over the difficulties of extracting the data required by the template, but Sier dismissed these objections.
“I don’t think any of that data that we’re asking for is in any way hard to collect. There isn’t a single asset manager out there that couldn’t get the data from their systems if they put a bit of effort into it,” he said.
According to Sier, the template ends a lack of clear guidance over appropriate cost data disclosure.
“It’s almost with a sense of relief that I see asset managers go, ‘Finally, someone’s told us what it is that we should be collecting. Now we just have to code it into our systems', and that’s just a systemic issue,” he said.
Sier admitted that there would be concerns over “other suppliers in the value chain not giving their data”, but that the IDWG would look to resolve this issue when appropriate.
LGPS schemes will migrate into the framework
The scheme advisory board's own code of transparency was announced at the PLSA’s local authority conference in May 2017. Many of the scheme’s most significant investment managers are signatories, and more than £150bn of assets are covered by the code.
The body has pledged to migrate into the IDWG framework. Councillor Roger Phillips, chair of the scheme advisory board, said: “The board is very pleased with the success of its transparency code and continues to support industry developments in this area.”
He added: “Once work on the IDWG template is complete, the board will be working with its signatory managers in its adoption, building on what is already in place with the LGPS.”
For Sier, the new framework represents the ending of an asset management philosophy that focuses purely on net outcomes, regardless of the costs incurred by institutional investors along the way.
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“The basic principle is this: the mantra, ‘Net performance is all you need to decide value for money' is no longer credible, sustainable, or indeed in any way acceptable,” Sier said.
“So if someone gives you that answer, ‘Net performance is all you need’, please show them the door.”
