| Soft commissions and bundling: the FSA sticks to its guns |
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| 18/04/2004 | |
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The Financial Services Authority (FSA), which previously argued in favour of an industry-led solution to the problem of softing and bundling, will not backtrack from its initial stance, and the asset management industry likes it. During a statement at the end of March, John Tiner, Managing Director, Consumer, Investment & Insurance at the FSA, discarded rumours pointing toward the FSA retracting its first proposals. "Our focus is always on the ends and not the means and where we are confident that a sensible market-led solution can deliver our target outcome we will work with the grain of the market rather than reach for our rule book", he said. By doing so, he took side with the feedback coming from fund managers and pension funds, who generally believe that market change is desirable. Both the Alternative Investment Management Association (AIMA) and the Investment Management Association (IMA) have favourably echoed this statement. "We are pleased that the FSA has approached the issues concerning the use of "softing" and "bundling" in a practical and proactive manner", said the AIMA in a statement. According to this association, the global hedge fund and alternative investment association, "the FSA has acknowledged industry participants' efforts to increase accountability and is prepared to allow the industry to develop and test a market-led solution to produce increased and effective transparency on commissions. " Comparative disclosure In its statement, John Tiner remembered that existing avenues were explored as potential solutions to this market flaw, among which the IMA and National Association of Pension Funds' "comparative disclosure model." This model was initially devised as a tool for enhancing the understanding the charges and costs levied of the assets of a pension fund, hence allowing for better reporting. Slightly modified, this model could eventually "provide a comparison of the information for an individual pension fund against similar information for the fund manager's total business on behalf of clients. The individual pension fund trustee could then compare how his fund is treated against all other clients of the fund manager" according to the IMA. The AIMA praised this model, saying it is a "promising possibility to deliver more meaningful informatin and improved choice for clients". Richard Saunders, Chief Executive of the IMA, responded that the IMA would certainly rise to the challenge set by the FSA, as they have already begun to do, along other industry representative bodies. The stakes of bundling and softing are high. The British financial authority has evaluated that about 40% of the total the brokers' commission is used to acquire non-trade services, such as investment research and market information technology, through bundled broking or soft commission arrangements, for which investors are usually left in the dark, and which ultimately affects the returns of their investments. In 2000, fund managers paid about £2.3 billion in commissions from their customers' funds to UK brokers according to the FSA. This e-mail address is being protected from spam bots, you need JavaScript enabled to view it |
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