Money Managers to Reveal Transaction Costs

March 11, 2002 ( - UK pension plan trustees will soon find out exactly how their collective £12 in trading costs breaks down - including the portion spent on soft commissions, as the asset management industry prepares to reveal the true costs of managing pension money.

Under the Investment Management Association (IMA)’s draft Pension Fund Disclosure code, the industry’s attempt to become more transparent following government criticism, money managers would provide pension plan trustees with a report detailing the costs of investing institutional money in the equity markets, according to the Financial Times.

The IMA’s draft code, scheduled for unveiling this week at a National Association of Pension Funds (NAPF) conference, expects fund managers to provide a general statement of costs coupled with a detailed breakdown of the costs.

The break down of costs will include, among other things:

  • fund managers’ fees
  • custody fees
  • brokers commissions, and 
  • government stamp duty

Fund managers who refuse to sign up to the new code, which require that they report these costs to their clients twice annually, risk losing new mandates, cautions Ken Ayers, chairman of the joint IMA-NAPF working party that drafted the code.

Soft on Soft Commissions

If fund managers are making their costs more transparent, the issue of soft commissions is bound to come up. This practice, which pension funds pay for in the long run, involves brokers providing fund managers with research services, in return for their trades.

According to a recent poll by the Financial Times, 18 out of 40 fund managers, still use soft commission subsidies with their brokers, while a further nine continue the practice for UK retail investors or clients outside the UK.