A report in Professional Pensions that we are to get yet another consultation on costs and charges fill me with gloom. As the report points out, we have two consultations on the subject – in progress. They follow an exhaustive call for evidence following the Novarca report published in April 2015. This report was itself a response to the failure of the Government to find a satisfactory way of defining hidden costs in the charge cap introduced in 2013.
It seems that every pension minister must have his or her own consultation on this subject to satisfy him or herself that nothing has changed since the last consultation and to ensure that the consultation can lead to his or her policy being included in a future pensions bill.
But we are dealing here with matters that are properly considered in secondary legislation (the stuff the FCA does). Statutory bodies such as IGCs , the LGPS advisory board and the Pensions Regulator are quite capable of making sure that whatever comes out of the FCA’s consultations is enforced.
The only beneficiaries of further consultations are the asset managers who will have won yet more years of grace in which they can operate under the radar. The Investment Association’s is questioning the data and metrics the FCA used to come to its conclusions that active funds do not on average provide better value than passive funds.
‘active’ means something “much broader than what tracking error (or other metrics) can show”.
” even on a total cost of ownership basis, active equity funds have on average outperformed their benchmarks”.
“do noticeably better than passive funds even on a bundled fee basis that includes advice and distribution costs”.
“weighted average returns for active equity funds are better than the benchmark net of all costs (including advice and distribution), indicating that the active equity universe as a whole is adding value”.
“not only due to a movement towards unbundled share classes”. Rather this reflects a movement towards cheaper share classes within the unbundled segment, says the IA, noting that taking only clean share classes into account, the price of active funds fell by 7 bps to 0.92% from 2013 to 2015.