The AMNT’s Bill Trythall says the FCA is making progress in the fight against murky pricing practices

More and more attention is being focused on the costs of the investment process and on the need for them to be transparent to trustees and members of pension schemes. The new requirement for chairs of trustee boards (and IGCs) to report, where possible, on transaction costs has highlighted the fact that this information is simply unavailable. 


The Investment Association’s comparison of hidden charges to the Loch Ness monster has hardly reduced the salience of the issue, even if the analogy was not meant as a boast of matching the monster at skill in concealment. If asset owners are to be able to make appropriate choices they need to have information; and if they are to have full trust in managers and intermediaries they need to be provided with it without cavil. However, for the information to be useful (or even usable) it needs to be provided according to common ground rules. 

It is for this reason that it was so heartening to see the publication last week by the Financial Conduct Authority of a consultation paper on transaction costs in workplace pensions. 

The paper does not seek to lay down a format for presentation of data. Members of the Association of Member-Nominated Trustees are inclined to be comfortable with that. A widely used common template would be very desirable, but its embodiment in the FCA rulebook would inhibit the smooth evolution of such a document in the light of experience. We anticipate that the template that Professor Chris Sier has been instrumental in developing for managers to report to the administering authorities in the Local Government Pension Scheme will be found suitable for many private sector schemes. Since there will be few managers who will not have, or be seeking, LGPS mandates, there should be no hardship or material cost in reporting to other clients in the same way. 

What the FCA consultation does aspire to is a standard definition of transaction costs. That is highly desirable and ought to be achievable. 

The enthusiasm we have in AMNT for this step forward is, however, dampened a bit by our concern that the FCA’s approach to the definition does not help as much as it should. We note that market movements would be bundled in with explicit costs and with effectiveness in securing best execution. Calling what one would then get “transaction costs” might be semantically accurate; but it would obscure the contribution made to those costs by the process of trading. It would seem that if one were buying in a sharply rising market, one would on this definition have negative transaction costs. Can that be sensible? 

The worry is that, unless the background movement of the market is stripped out of the costs, they will not give us a basis for comparison of different providers’ effectiveness. That is not going to be popular with those in the industry who have a good story to tell. Nor should it be. 

Further work needs to be put in. We shall be looking to experts to suggest improvements and envisage supporting the best ideas in responding to the consultation before Christmas. What we must ask of the FCA is not to give up if the going gets tough, and not to embark on a leisurely search for perfection or wait for the completion of an international system before reaching a conclusion. There are people out there who would wish this journey to be halted or at least diverted on a lengthy detour. They must not get their wish.

Bill Trythall is a council member of the AMNT