UK Fund Group Warns Regulators Away from Soft Dollar Limits

March 22, 2004 ( - A leading British financial lobby group sent up red flags to regulators that they risked forcing mutual fund managers out of the country if they went forward with a crackdown on broker fees from big investors.

The Investment Management Association (IMA), whose members collectively oversee about two trillion pounds ($3.69 trillion) of assets, said there was a danger that Britain’s Financial Services Authority could go a different way than its American regulatory counterparts, according to Reuters.

“Improved transparency is here to stay… but we need to move in step with the US because the consequences of not moving in step with the US is business will leave the UK for New York,” IMA Chief Executive Richard Saunders told a London seminar.

Saunders was speaking to fund managers, pension fund trustees, investment bankers and brokers on the FSA’s plans to reform the practice of soft commissions, where brokers charge investors a flat trading commission for a range of services. These services include the share trade and the brokerage’s own research and investment advice, but they can also extend to the broker providing the fund manager with third-party benefits, such as financial information screens.

The FSA has said such soft commissions shroud the real cost of trading and are not in tune with an open, efficient market. In the United States, where mutual funds are already under fire over a trading-abuses scandal, the US Securities and Exchange Commission (SEC) also recently consulted the industry on whether flat commissions should be replaced by itemized bills.(See  Soft-Dollar Debate Continues Red Hot ).

There has also been considerable discussion about how best to cope with soft dollar payments in the US financial services industry.