UK – Asset managers that fail to allocate money to long-term investment research should be forced to explain their lack commitment, a UK parliamentary committee has argued.
The parliamentary committee for business, innovation and skills also criticised the timescale granted for a legal review of fiduciary duty and suggested the government should conduct impact assessments on the introduction of a financial transaction tax (FTT).
Publishing its report on the Kay Review on long-term investing, the committee said the Financial Conduct Authority (FCA) should make clear investment research on matters of stewardship could be paid for from equity commissions reserved for research.
"Furthermore, we recommend the FCA set and publish an appropriate minimum proportion of a firm's commission allocated to research that should be used towards such activities and an annual list of those firms that do not achieve that level," it said.
It also suggested those firms found in breach should be forced to explain why they had not "dedicated the recommended proportion of resources on good long-term stewardship".
Steve Waygood, chief responsible investment officer at Aviva Investors, backed the call for the FCA to take action.
"Rewarding the market for investment research that supports stewardship is in the long-term interests of our clients, whose assets generate the commission," he said.
However, Waygood said John Kay's analysis had lacked recommendations to achieve the change the author sought.
"A range of measures needs to be considered and changes to the demand side of stewardship, incentives, funding mechanisms, as well as regulatory reform, are all required," he said.
The National Association of Pension Funds' Will Pomroy, responsible for the organisation's corporate governance policy, agreed that emphasis on how investment research was financed was important.
"Furthermore," he added, "the transparency around the proportion of this spending by firms will enable pension funds to identify those long-term stewards who are committed to adding long-term value for their clients."
The calls for a greater emphasis on research come after secretary of state for business argued that the industry should fund some of the research required to make Kay's proposed Investor Forum a reality.
His department has since launched a panel that will investigate how long-term investing is hampered by reporting metrics, tying in with calls for an end to quarterly reporting – something the committee suggested the UK should promote with overseas regulators.
MPs also said the Law Commission, asked earlier this year to investigate whether the current understanding of the term 'fiduciary duty' acted as a hurdle to long-term investing, should aim to deliver its verdict by the first quarter of next year rather than June 2014.
In contrast to government opposition to the introduction of an FTT by the European Commission, the backbenchers also urged that an impact assessment be conducted for its introduction as a levy on high frequency traded equities.
Admitting that those who gave evidence to the committee had concerns about the practicality of any such measures, the report added: "We recommend the government consider the viability, benefits and risks of a financial transaction tax and commissions research."