The Financial Conduct Authority (FCA) must ditch the methodology used to calculate transaction costs incurred by investment of defined contribution (DC) funds as a matter of urgency, the Investment Association (IA) says.
The trade body said "immediate action" must be taken to suspend and replace the methodology which is causing "investor detriment".
It added the wider rollout of the methodology - which sits under the European Union's Packaged Retail Insurance-based Investment Products (PRIIPs) and second Markets in Financial Instruments directives (MiFID II) - to the retail market should also now be delayed.
The disclosure framework was introduced for asset managers overseeing DC assets earlier this year, and calculates transaction costs using a "slippage cost" - the cost of a share between the time an order is made and when it is executed.
Trustees have also, since April, been required to disclose these costs to members, trade unions and beneficiaries on an annual basis.
Now, the IA has said the FCA should scrap the rules and undertake an "open and collaborative approach" with the asset management industry and other stakeholders to develop a better solution.
The comments were made in the IA's response to the watchdog's call for input on the methodology, which closed late last month.
IA chief executive Chris Cummings said: "Urgent action is now needed by the FCA to address the flawed methodologies of PRIIPs which are having harmful consequences for savers and investors across the UK retail and DC pensions markets. The FCA rightly called for evidence of investor detriment caused by the new rules. It has been delivered. The case is now proven and it's time for action."
PTL managing director Richard Butcher said he "tends to agree" with the IA's assessment, noting the market movement cost can mask the true costs of transactions and even produce a "negative cost".
"The difference between entry and execution prices does talk to the efficiency of the manager - how quickly can they make a decision and execute it? - but it's not a cost in the true sense of the word," he said. "What I'm interested in, in terms of costs, is: what are they pocketing? What are they incurring? What's coming out of the return that they benefit from?
"That would be legal fees, broker fees, FX costs, as well as their annual management charge. I want to know what's being trousered or incurred by either the principal asset manager or those beneath them in the investment chain. The danger of the slippage cost methodology is that it distorts all of that true data."
The FCA is later this autumn due to publish five templates for disclosing a range of implicit costs, created by the independent Institutional Disclosure Working Group (IDWG).
Butcher, who sat on the IDWG, said the templates would overcome many of the problems posed by the slippage cost methodology.
"The base template that the IDWG has put together separately identifies the cost and market movements," he said. "That gives me the data I need to apply pressure on the costs, but it also gives me the bit of data that talks about their efficiency."
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