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Defined Contribution

U.K. to require managers to disclose administration, transaction costs to DC plans

Money managers will be required to disclose administration charges and transaction costs to U.K. defined contribution plans starting in 2018, the U.K. Financial Conduct Authority said Wednesday.

Firms must provide information about transaction costs, calculated using the "slippage cost" methodology, and information about administration charges starting on Jan. 3, 2018, to the governance bodies of DC plans.

The slippage cost approach identifies the price of an asset by comparing the price at which a transaction was executed with the price when the order to transact entered the market.

The FCA said it decided on the methodology without making any adjustments to reduce the impact of market movements.

"While explicit costs are relatively straightforward to calculate and disclose, we recognize that implicit costs are not so straightforward. We considered a number of ways of calculating implicit costs, concluding that, although there is no perfect way of calculating implicit transaction costs, the slippage cost methodology would be the best way of evaluating them," the FCA said.

Maria Nazarova-Doyle, head of DC investment consulting at JLT Employee Benefits, said in an emailed comment: "While it may not be a straightforward undertaking for the asset managers, it should be seen as a positive development in the longer term. Those managers who diligently apply best practice and offer better value for money will be recognized for their efforts."

Ms. Nazarova-Doyle added in the email: "In addition, this move will help to resolve the absurd challenges facing trustees of defined contribution pension schemes who have to disclose scheme funds' transaction costs to their members whilst being unable to obtain this information from investment managers because they were not legally required to provide them."

The FCA said firms that do not have the relevant information must obtain it through external providers, which will be required to supply the data to the DC plans.

A full policy statement outlining details of cost calculation for every asset is available on the FCA's website.