Money managers and defined contribution plan sponsors in the U.K. are being challenged by yet more regulation that is going to shine a spotlight on fees.
U.K. managers are working to provide transaction cost data to defined contribution plan clients following mandates from the Financial Conduct Authority and, indirectly, the Pensions Regulator earlier this year. The regulators want DC plans to disclose to participants how much is being spent on transaction costs as part of overall fees being paid to managers.
"I don't think we've expected it to be this tough, but the data isn't there," said Alex Toney, associate at defined contribution consultant Barnett Waddingham in London.
The FCA's rule, requiring managers to provide clients information on transaction costs, among other fees, became effective Jan. 3. The Pensions Regulator's rule, effective April 6, requires DC plan trustees to publish for their plan participants a breakdown of transaction and other investment charges within seven months of the plan-year end. The first DC plans will need to start publishing the cost data starting in November.
The regulator wants to unpack the investment management fees charged to DC plans and participants — and in doing so, see if plan sponsors are correctly charged for investments strategies they choose in order to deliver value for money to plan participants.
Defined contribution strategies were not specifically included in a host of recent regulations — including the European Markets in Financial Instruments Directive II — designed to improve transparency of investments; these latest transaction cost regulations are an effort to fix that, sources said.
In addition to the time constraint of gathering, providing and publishing this information in less than a year, managers already are encountering another challenge: Firms that provide multiasset strategies or target-date funds are finding it difficult to gather data, and comparable data, from underlying managers because the regulations require a specific calculation methodology — slippage cost — that most managers have not used in the past.
"Managers are struggling to get the data from underlying managers because there was no consistent reporting standard prior to the regulation. Often what managers are getting isn't comparable and it is taking a lot of time to get the information," Barnett Waddingham's Mr. Toney said.