The FCA have published a very important paper. The timing of the publication may prove unfortunate coming at a time when eyes may be elsewhere, but the FCA’s call for information on transaction cost disclosure must not be drowned by the noise about pension freedoms.

The paper is published alongside a report by the investment consultancy – Novarca. The FCA paper is based on work carried out by Novarca on its behalf. I will declare an interest here, Novarca and my firm First Actuarial have a formal alliance and we have acted for Novarca for 18 months.

The reason why we work with Novarca is because they are excellent in what they do and because they have no conflicts telling it like it is. Reading Novarca’s and the FCA’s paper, you will be amazed that so much information is new but also how much of the analysis makes sense of questions we have often wanted to ask but never known how!

These include the questions,

Why do my investment funds not go up as much as the markets they invest in?

Why is the city so rich?

How do I tell if my fund manager is doing a good job?

The feeling among the public is that the City is a law unto itself and we will not know these answers because the people charged with asking the questions (the consultants) are part of the problem.

Why these papers are so important is that they cut through the conflicts and create a way for Trustees of occupational (DC) schemes and the Independent Governance Committees who oversee group personal pensions to find answers to these questions.

As importantly, these papers help these fiduciaries a way to compare the information with benchmarks of what “good looks like” so they can make sure the people using workplace pensions get fair value for the costs and charges they are incurring.

Importantly, the papers are not sensationalist. There is no posturing here, fingers are not being pointed. The tone of both papers is authoritative, without being inflammatory and the ABI and IA , two organisations that have had most difficulty embracing the cause of transparency appear to have had a damascene conversion.

The FCA are jointly publishing this paper with the DWP. This is a step in the right direction. From April, new rules come into force that ensure that much of the bad practice at “product level”, that has depressed returns in workplace pensions, will disappear. Workplace pension plans  being used for auto-enrolment will not only be cleaner, they will be better kept with a higher standard of governance expected of them.

The proposals within the FCA call for evidence are likely to make their way into the governance of workplace pensions in 2015 and be fully integrated in 2016. In 2017, the costs identified within the funds we invest, may be integrated into the charge cap (v 2.0).

As the reports make plain, the big loser from this will be bad practice. More specifically, there will be less of our money left on the table for dealers, brokers, Forex traders and the other backroom intermediaries who clean up when mistakes are made.

Bad practice leads to poor fund performance since the majority of the costs – implicit and explicit of fund management impact the net asset value of a fund which is what is used to calculate unit prices which generate fund performance measures.

So we will know answers to the questions I listed earlier, assuming trustees and IGCs can pass on the information they have collected in a way that makes sense to ordinary pension consumers.

I urge anyone who has an interest in fund management to read the papers (read the Novarca one first). If you want to know why fund generally deliver below market returns, why the City is rich and whether your fund manager is doing a good job, you need to understand what happens to your money once the fund manager gets it.

Of course that isn’t the end of the story, in fact its the beginning. Because all the trading and costs associated buys you something. That should be “good value” – this is all about value for money. But until we know about the money, it is hard to assess the true value!

Novarca’s reporting template.