Fund managers that plead ignorance- display indolence.



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In an age of information , ignorance is a choice

“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.


Chris Sier – a man who can.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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6 Responses to Fund managers that plead ignorance- display indolence.

  1. Kate Upcraft says:

    Do you know all I ever seem to read is that the pensions industry cannot meet legislative deadlines because of technology constraints so should be given more time. Often they get that time, for example Scottish tax relief. They should try offering payroll software to 40m taxpayers, we often have to turn on a sixpence and HMRC don’t afford employers the same special treatment. I’m with you Henry, if technology and the people aren’t up to the job they don’t deserve our money

  2. alan chaplin says:

    I agree Henry. Need time to put technology in place to record the information – what a feeble excuse. What business, let alone a financial services business, expects to run efficiently without recording their costs accurately?? Kate’s comment prompts a thought from me… Rather than tutting from FCA/DWP, maybe HMRC should investigate these firms. After all, if they are unable to disclose their costs, how can they demonstrate they are calculating their profit correctly and thus paying the correct tax?

  3. henry tapper says:

    Hear hear!

  4. George Kirrin says:

    Hiring an asset manager without knowing what that’s costing is like paying for an expensive footballer without conducting a medical?

    More like some of the ones who’ve been scouted on video, Henry?

    Yet many/most shareholders don’t know all of the costs of the executives they employ – the accruing handshakes, the expense accounts, the pensions or allowances in lieu of pensions, and the rest.

    And why are the Chris Sier “templates” still not available? I had the misfortune to see an earlier version last year, and I was fairly unimpressed, and began to have sympathies with the fund manager back offices who have to complete these.

    Net returns are what we get, and personally I’m not convinced agonising over detailed gross-to-net reconciliations gets us very far. I would prioritise understanding the components of gross returns and then having a total in £ or a percentage which takes us from
    gross to net.

    Too much analysis leads to paralysis?

  5. henry tapper says:

    Wow – George! You’ve had more likes for that comment than my posts get in a week!

  6. Maybe the reason for Henry Kirrin’s ‘likes’ is because he exhibits some sympathetic understanding that this is not a simple issue. You seem to have rushed to judgement – not in a Euraka moment, though, as that implies insight into the technical or scientific reality. I don’t think that is what your judgement rests on. Here are some reasons why. They are based on my reading of the history of this particular regulation which has been long and tortuous and at every step highly contentious – for quite technical reasons. Though this affects my firm, there are many people in my field more expert at responding to your post. Forgive me if you know all this, and know more than me, but it is not what your post implies.

    1. The attitude of the FCA is irrelevant: it is merely enforcing an EU regulation.
    2. The EU regulation was widely disputed across the industry and not just by the UK industry bodies. It was even subject to opposition by MEPs – a rarity in itself.
    3. The reasoning behind the criticisms was that the the regulation in respect of what you call ‘slippage’ does not do what it was intended to do. This is to estimate what has become (with massively falling direct transaction costs) the largest (possibly only significant) cost: market impact. This is the effect of a fund manager moving the price as a direct consequence of its own activity. If it was as important as the regulation implies, I can’t see why the FCA or anyone would expect it to sum to zero. The element that would sum to near enough zero, so with many negative values, is market movements between the time of a decision and the time of execution that are independent of the order impact. They are truly random. The order impact distinct form the above should sum to a positive, as long as there are a large number of transactions in the markets of a size greater than the typical quoted spread, regardless of the direction of the trade. If it did not, there would be no market impact and no cost to its non-disclosure.
    4. Alternatively, the concept might be sound but the means of estimating it is wrong. Basing it on a market price at the time the decision is taken is somewhat arbitrary and introduces too many other opportunities for an explanation of the ‘slippage’. Hence the industry objections.
    5. Another source of criticism that was eventually ignored is the idea of combining actual costs with notional costs represented by a proxy. This might actually undermine the integrity of the total cost figure. I think we can safely say that is exactly what will happen when the frailty of the slippage figure is better understood.
    6. Though it’s not directly relevant to the issue of market impact, even the historic actual transaction costs are of limited predictive information for investors in a public fund without understanding the variance in the costs from year to year as a function of i) activity in the manager’s control (i.e. the variance in the return differences an active manager seeks to exploit) and ii) activity outside their control as a consequence of flows into and out of a public fund. I’m not sure how even understanding this would do more than reduce the information content of these numbers, though. This principle was perhaps the most telling aspect of the industry and academic contributions to the EU debate.
    7. As Henry Kirrin’s comment mentions, the FCA itself has contributed to both a rush to enact and a delay in giving guidance via ‘templates’.

    There may be another angle specific to the DWP’s role, given your post started life as a comment specific to DC funds. I must admit I’m not familiar with that.

    If my general take is accurate, what follows is that there is no basis for judging the integrity of the industry on this occasion. It is a genuine regulatory mess – more cock-up than conspiracy. The sad aspect of it is that public expectations were raised about the benefits of new and meaningful disclosure that were simply unfounded. The slippage number is virtually the only ‘new’ one required to be published and is not ‘meaningful’ in the way hoped.

    If anyone can tell me where my take is inaccurate, I would be happy to stand corrected as I am all for disclosure that makes for better consumer choices. Indeed, as an agent for retail investors, my duty of care includes helping them make better, and better-informed, choices.

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