UK-listed fund manager Schroders has become the first group to sign up to a new cost model designed to assess value for money for defined contribution (DC) investment offerings.
The Clear Funds service was launched last month by UK independent trustee firm PTL in response to new rules for DC schemes that require trustees and governance committees to demonstrate that their investments offer value for money.
PTL is assessing 13 of Schroders’ top funds on offer to DC schemes and investors. Clear Funds will analyse the company’s processes for controlling and reporting transaction costs and produce a concise report for each one. Schroders will then pass this on to clients as proof of an independent assessment of value for money.
David Heathcock, DC product manager at Schroders, said that any concerns flagged by PTL would be contained in the report and addressed by the fund manager.
“We hope and expect PTL to look at our processes and find that we keep a lid on costs, minimise transaction costs and add value through our process,” Heathcock said. “Our belief is these funds are operated in a closely controlled way.”
Richard Butcher, managing director at PTL, added that a Clear Funds certification would show whether a fund provided value for money or not, as well as an assessment of a manager’s method of controlling costs and any risks to that – for example staff that may be remunerated based on transactions.
“The most difficult aspect is the implicit costs, such as the transaction costs,” Butcher said. “You can have up to 48 different transaction costs, thousands of trades a year, and terabytes of data. How can you deal with that as a trustee?”
Butcher said that new European rules aimed at improving transparency of costs – such as MiFID II and PRIIPs – had led to more data being available, but that interpreting that data was “complicated”.
“We have to be able to get our heads around things like the transaction costs associated with trading in dark pools,” he added. “With Clear Funds we can take time with Schroders to understand that. If Schroders had to do that with all its DC clients it would be hugely time-consuming.”
Since 2015, independent governance committees overseeing UK workplace DC pensions have been required by the Financial Conduct Authority to monitor their schemes’ value for money. In addition, last year’s Asset Management Market Study report from the regulator raised concerns that fund managers were failing to provide value for money.