Costs and charges disclosure features high on the regulatory agenda in both the UK and across Europe. The Investment Association and the firms it represents are committed to delivering transparency of costs and charges and the IA has led efforts to guide regulators to create a coherent disclosure landscape and to help firms interpret the requirements and facilitate the delivery of useful information through the distribution chain to end consumers. There are a number of initiatives in this area.
DC workplace pensions
Since April 2015, the governance bodies of defined contribution workplace pensions have been required to seek to obtain information on charges and transaction costs and explain the extent to which they offer good value for members. Since January 2018, asset managers have had a corresponding obligation to provide this information in accordance with a standardised methodology for calculating transaction costs as set out in FCA rules. Together the IA and ABI developed a standardised framework of templates for delivering this information.
LGPS Code of Transparency
In May 2017 the Local Government Pension Scheme (LGPS) Advisory Board launched the Code of Transparency for LGPS asset managers. The Code aims to assist LGPS funds in obtaining the data they require in order to report costs on a transparent basis and is based on the disclosure template proposed by the IA in March 2017. The Advisory Board has committed to replace the Code templates with the template developed by the Institutional Disclosure Working Group (IDWG) and its successor bodies.
MiFID II implementation
Since the start of 2018 distributors and advisors providing services under the recast Markets in Financial Instruments Directive (MiFID II) have been required to provide information about all costs and charges within the funds they offer to their clients. Product providers need to support distributors in fulfilling their obligations by providing the relevant cost information. Similarly MiFID-regulated asset managers are required to provide information about all costs and charges incurred in respect of the portfolios they manage both for their retail and professional clients.
Since the start of 2018 providers offering packaged retail and insurance-based investment products (PRIIPs) to retail clients have been required to provide key information documents (KIDs) containing information on the total costs and the possible effect they might have on the investment. Fund managers of UCITS and NURS are exempt from these requirements until the end of 2019 and this exemption is expected to be extended to the end of 2021. During the exemption fund managers will need to support their insurance clients in fulfilling their obligations by providing the relevant cost information.
In July 2018 the FCA sought feedback from firms and consumers about their initial experiences of the PRIIPs requirements and the IA responded in September. A feedback statement is expected in the February.
FCA Market Study
In June 2017 the FCA published the final report setting out the findings of the Asset Management Market Study. The FCA concluded that changes coming into place at the start of 2018 under MiFID II and PRIIPs will provide investors with greater clarity about charges and laid out their plans to investigate further how the prominence and formatting of charges information affects consumer behaviour. The results of their testing in this area were published in April 2018.
Institutional investor disclosure
The Cost Transparency Initiative (CTI) was launched in November 2018 in order to curate, test and update the cost transparency framework recommended by the Institutional Disclosure Working Group (IDWG). The CTI is an independent group supported by the Pensions and Lifetime Savings Association (PLSA), the Local Government Pension Scheme (LGPS) Advisory Board and the Investment Association. Further information can be found on the CTI webpage.
The formation of the IDWG flowed from the Asset Management Market Study and was intended to take forward the development of a disclosure template aimed at the asset managers of institutional segregated mandates. The IDWG submitted its final report and recommendations to the FCA in June 2018 and was disbanded. A key part of the IDWG mandate was to achieve consensus on a standardised disclosure template building on the LGPS Code and the disclosure template proposed by the IA in March 2017. The IA template was designed with the assistance of an Independent Advisory Board specifically to join up and provide a consistent approach across the UK and EU regulations outlined above.