UK – The potential introduction of single fee structures and an end to “soft commissions” is the hottest subject among fund managers thrown up by the Myners review of institutional investment, claims research undertaken by Reuters into the review’s impact on the fund management and financial industries.

The consequences of the changes put forward by Myners could mean that fund managers would have to start paying the cost of trading shares for clients and then passing this on as an overall agreed fee, whereas currently pension funds pay the costs as they are incurred.
Myners argues that the changes would allow greater transparency for pension funds.

Reuters’s research finds that whilst most fund managers agree with the principle of changing the charging structure, there are nonetheless potential problems, such as managers being encouraged to deal net rather than gross to reduce management costs.

Order-driven markets like the New York and London stock exchanges are also likely to be undermined. This will lead to a widening of trading spreads, which will increase the cost of dealing for all players and thus the overall costs incurred by pension funds will rise, Reuters's research suggests.

Furthermore, according to the research, UK fund managers may find themselves disadvantaged against other market players such as hedge funds or overseas investors, who are willing to pay brokers for services such as best trade execution, trading ideas, block trades, equity research and first calls.

The research results go on to say that Myners’ recommendations may create a conflict of interest between fund managers and their clients, since, once their budgeted commission has been paid, fund managers could feel a disincentive to deal.

If the recommendations are implemented, Reuters' s research records a feeling in the fund management community that there will be some large-scale consolidations and, as a consequence, the market will eventually be dominated by a combination of large international players that gain from economies of scale, and strong niche players. Moreover, the UK industry could then be so far out of line with its international counterparts that London could be threatened as the world’s pre-eminent financial centre.

In response to the Myners review, the fund managers association has commissioned the London Business School to look into to the impact of including brokers’ commissions in the fees fund managers charge clients, a study that has the full backing of the fund managers themselves, as they indicate to the researchers that Myners’ recommendations on commissions and charges have not been fully researched and analysed.

The report highlights the findings of some 40 face-to-face meetings with a wide array of financial industry professionals, including decision makers from pension schemes, investment consultants, fund management companies and investment banks.

Topics