“Some 56% of defined contribution (DC) asset managers do not believe they will have transaction cost information in time for pension funds’ March year-end statements, according to Lane Clark & Peacock (LCP) research”. (Professional Pensions)
Hiring an asset manager without knowing what that’s costing is like paying for an expensive footballer without conducting a medical.
Laura Myers is right to highlight the unpreparedness of asset managers to meet DWP disclosure requirements by March.
But no DC trustee should mistake manager ignorance for what it is – INDOLENCE.
Does this matter?
Transaction costs are one of the few areas of pension risk that can properly be managed. Where costs are high, it’s either because they’re generating “value” or because a fund is being inefficiently managed.
Trustees need to understand both the level of the costs, and whether the costs are worth it. If they aren’t, they can challenge the management of the fund and ultimately they have the sanction of removing a manager.
This matters to sponsors of DB schemes who are picking up the balance of costs (after the member has paid), if the costs are increased by inefficient management, then those inefficiencies are passed on to the employers profit and loss.
They matter even more to the beneficiaries of defined contribution schemes, who pay for inefficient fund management through reduced returns, leading to reduced income and cash in retirement. Whereas an employer can absorb some efficiencies in the scale of the P/L, members have no such buffer;- poor performance = poor pensions.
Is this unpreparedness plausible?
Laura Myers, one of the best DC consultants around, has this to say about the situation.
“The FCA legislation mandating the calculation of transaction costs has been at short notice, and providers still need to build the internal technology necessary to record the required information,” ….. “It is likely there will be further delays until complete disclosure of transaction costs is possible”.
I don’t entirely agree.
Asset managers have had since January this year to start planning , by April they knew that they would have to be reporting on charges. Since April, trust based DC schemes must provide additional information in relation to investment charges and core transaction costs to be made available online to members via the annual chair’s statement within seven months of the scheme’s year-end date.
This is the proper line
Trustees’ duties under the Charges and Governance regulations are to report transaction costs “as far as they are able” .
The FCA has commissioned Dr Chris Sier to produce templates which fund managers can report fees on, these will be available in the autumn.
I simply don’t believe that fund managers cannot find the data to complete these templates, after all the Institutional Disclosures Working Group, which Sier chairs, is packed with fund managers and representatives of fund manager trade bodies.
Knowing Laura Myers, I am quite sure she is of the same view as me, that fund managers who plead ignorance, display indolence.
Trustees should not be lenient on indolent managers
DC trustee’s responsibilities are to their members, not to their fund managers. They should not allow their managers to miss deadlines, instead they should be whistle-blowing.
Pension consultants , whether like LCP and First Actuarial they provide external advice, most others – fiduciary management, have a responsibility to ensure that trustees are properly appraised of costs as the law demands.
Any complicity between trustees, advisers and asset managers in allowing timeframes to slip puts DC member’s pensions at risk.
Cost management is a key lever for fund managers to improve returns to members. If fund managers cannot be bothered to work out what their costs are they are lazy and incompetent and have no business managing member’s money.
If trustees don’t push “as far as they are able” , then they are in breach of their fiduciary obligations.
If consultants accept second rate standards from fund managers, then they are failing their clients – the trustees.
Failure need not happen.
If LCP see their clients heading for the buffers, they should do something about it. The same for any consultant or trustee anticipating non-compliance.
I would be very happy to refer any fund manager who is planning on failing to Dr Chris Sier, who I see on a daily basis.
Infact , I will be talking with him about how we can help the 56% of LCP clients – and by extension that proportion of the 40,000 odd DC occupational pension schemes who have a problem, but don’t know it.
I can’t put cost disclosure right myself – but I know a man who can.