UK asset managers should be subject to a fiduciary duty to act in clients’ best interests, according to the Transparency Task Force, which is also calling for greater clarity on investment fees.
The group made the demand as it estimated pension funds were subject to more than 100 types of costs and charges, and questioned whether high management costs risked destabilising pension funds and their sponsors.
Christopher Sier of Newcastle University, leader of the task force’s costs and charges team, argued that charges could impact retirement income and company solvency, pointing to the recent collapse of UK retailer BHS.
“Policymakers need to understand hidden pension scheme costs and charges don’t just adversely impact incomes at retirement,” he said.
“They can also adversely impact incomes during the working years because pension scheme costs can help to destabilise the financial viability of a business, leading ultimately to the closure of the firm and the loss of jobs.”
The task force urged regulators, including the Financial Conduct Authority in its forthcoming interim report on the asset management market, to pay greater attention to costs.
The asset management industry has previously warned against imposing a fiduciary duty on the industry, repeatedly arguing it was not a legal principle but rather a set of morals.
An attempt by the Investment Association, the UK industry body for asset managers, to draft a code of conduct for its members was not welcomed by all industry participants and led to the departure of the IA’s chief executive Daniel Godfrey last year.
As part of the focus on fees, the task force also proposed managers be forced to comply with a “professional duty of care to put consumers’ interests ahead of their own” – a fiduciary duty in line with the responsibilities placed on pension trustees in the UK.
The task force pointed to the recent Financial Services Consumer Panel report on fees, which backed the recommendation, and was informed by a research paper authored by Sier.
Sier added: “The basic problem is that, in general terms, there are so many costs outside of those the consumer or trustee is told about, particularly those deemed to be a change in the market value of assets – that’s where the implicit costs tend to be hidden.”
He pointed to the success enjoyed by the West Midlands Pension Fund in uncovering some of the fees incurred through its external investment management – which has seen management costs rise by more than £70m (€90.3m) from its initial £11m.
Discussing the increased costs, Sier added: “‘Interesting’ is one word that springs to mind, but there are alternatives.”