Pension fund executives will have another fiduciary responsibility starting as early as next year, courtesy of the European Commission.
New EC rules will require money managers with European operations, clients or investment strategies to disclose, in advance, a detailed budget of research charges that have historically been bundled with execution costs under what's known as soft dollars. Pension fund executives can either accept or reject those charges from their money managers.
And therein lies the new fiduciary responsibility, sources said.
Overall asset owner costs for research are expected to fall by 15% under the new Markets in Financial Instruments Directive II rules, according to a report from London-based Frost Consulting Ltd., which advises pension funds and managers on market structure changes.
That's because asset owners under MiFID II will pay only for research they specifically need for their investments, said Steven Glass, president and CEO of Zeno Consulting Group LLC, a Bethesda, Md.-based consultant to pension funds on trading issues.
Managers that bundle commissions currently use a top-bottom approach, in which a manager uses commissions to pay for all kinds of research — often in asset classes in which asset owners, who are paying through bundled commissions, weren't investing.
“Managers will need to say what they need, what the costs are, and what that will mean for asset owners' pro rata research,” said Mr. Glass. “And because that will now involve the transfer of plan assets, that now makes it a fiduciary decision for a pension fund” — whether that asset transfer will be done for the benefit of its participants.
“Anytime a pension (fund) board is asked to OK a transfer of funds, fiduciary antennas go up,” Mr. Glass added. “There will be a lot of attention to this since it will be a new fiduciary risk.”