But the regulator has stopped short of calling for a ban on using research paid for through bundled commissions and has not called for mandatory transparency measures to require fund managers to disclose soft commissions, although it says the consultation is part of a broader overhaul of the whole dealing regime.
The FCA says the proposals are designed to ensure investment managers make appropriate judgments and seek to control costs to clients when using dealing commission to pay for research goods and services. One of the main proposals that will be consulted on include clarifying the criteria for research goods and services that can be purchased by investment managers with dealing commission paid from customers’ funds.
The consultation will also attempt to define ‘corporate access’ and provide guidance on how investment managers should treat corporate access under the use of dealing commission rules.
It will also consider guidance on making mixed-use assessments where investment managers purchase bundled brokerage services that contain both research and non-research elements, to ensure that only research is paid for with dealing commission.
Corporate Adviser has been highlighting issues relating to the use of bundled commissions since August 2012.
FCA CEO Martin Wheatley says: “We need to be confident that managers are putting their clients’ value for money, good returns, and transparency at the heart of how they do business. So this consultation is part of a wider debate on the need to reform the use of the dealing regime, particularly the use of dealing commissions, and how industry practice can be improved now to the benefit of all.
“As a forward-looking regulator, we expect firms to exercise judgement to act in the best interest of their clients – seeking to manage their clients’ costs as effectively as they pursue investment returns.”
LCP partner Andy Cheseldine says: “There are a number of consultations going on at the moment and it will be interesting to see how they interact. The DWP is asking whether transaction costs should be included in their proposed charge cap. My initial reaction to that would be no. But I think there is a strong argument that regular expenses such as research costs should be included within any definition of charge cap and as these are clearly paid from transaction costs, it could mean they have to be dragged in.
“Perhaps pension providers, who want to keep the proposed charge cap as simple as possible, should be exerting pressure on the investment managers. It is obvious that regulators will not be happy if there is any attempt to shift charges that should be in scope for a cap outside of the defined specification.
“Otherwise, those managers who use soft commission to fund research may find themselves excluded from the auto-enrolment pension market and, in due course, probably the whole pensions and institutional investment market.”