The FCA has chosen to focus on the disclosure of information to governance bodies who represent the best interests of consumers (trustees and IGCs) rather than consumers themselves at this stage. We support this, as the information will still be complex when disclosed and requires to be considered within a context which requires a reasonably comprehensive level of investment expertise.
The FCA appears to be focusing on a backward-looking approach, reporting on actual costs for the preceding period. There is no attempt here to propose a forecasting for costs for the forthcoming period, which in our opinion would have been a very subjective exercise.
The FCA has adopted a pragmatic approach which will ensure that the effect of all charges is determined and communicated, leaving scope for IGCs and Trustees to have more detailed conversations in relation to the granularity of the make-up of the total costs. A quantitative analysis in conjunction with qualitative discussion is likely to be the best means of IGCs and Trustees determining the extent to which transaction costs are influencing value for money.
For us, we believe that there are three key questions which IGCs and Trustees need to have answered on behalf of members;
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To what extent has the dilution effect of trading been justified by the upside for members through the re-shaped portfolio?
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To what extent has the dilution effect of trading been minimised through efficient and effective execution?
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To what extent have scheme members benefited by revenues generated through ‘stock lending’?
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We are pleased that the FCA has developed a pragmatic approach to the calculation of a slippage cost which considers the first two questions and that they also propose to show separately any revenue from ‘stock lending’ which is not passed on to scheme members.
Consistency is going to be key. Our research consistently shows that customers use a wide range of products and assets to save for their retirement. It is important that pensions don’t operate in a bubble and that customers can compare all costs and charges across all of the products which they are using. We welcome the FCA’s desire to introduce an approach for workplace pensions which aligns as closely as possible to the disclosure codes which are emerging for other product types.
Consistency will also be key across asset managers so that IGCs and Trustees can not only make an absolute assessment of a particular fund over the preceding period, but also make relative assessments across other similar funds.
This paper only covers Workplace Pensions. The obvious question is what will close the disclosure gap for Individual Pensions.
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