UK - Investment managers have backed a drive by the Financial Services Authority to end soft commissions and unbundled payments for non-execution services.
The regulator said that institutional fund managers paid £2.3bn in commission to brokers in 2001, of which between £660m and £880m was spent on services “additional to dealing”.
In the FSA’s CP176 policy statement published last week, it said “softing and bundling” of non-execution goods and services were not in the interests of investors.
But instead of demanding immediate changes, the regulator gave the Investment Management Association until December to come up with a market-based solution.
It warned that if a satisfactory solution was not found, “further regulatory action” would be taken.
FSA head of institutional business policy Christina Sinclair said: “We are giving the industry space to develop a transparent mechanism for identifying the price of investment research included in commissions. These measures will together help strengthen fund managers’ accountability to their clients.”
The IMA welcomed the FSA’s decision and said as part of its efforts it would begin trials of an enhanced version of the disclosure code it designed with the National Association of Pension Funds in order to increase transparency.
The IMA will also hold talks with stockbrokers about other possible reforms, and promised “significant progress” before the FSA’s December deadline. Chief executive Richard Saunders said: “We have a full work programme with these initiatives, but are delighted that the FSA has given us the opportunity to demonstrate what can be achieved through market-led solutions.”
Insight Investment deputy chief investment officer Alan Denholm welcomed the FSA’s decision to allow an industry-led solution.
He said: “We firmly believe that increased transparency of commission usage is good for the industry and investors alike. We support the view that fund managers should be fully accountable to their clients for the expenditure of client funds.”
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