On 7 November, the Cost Transparency Initiative was launched.
The CTI is a partnership between the Pensions and Lifetime Savings Association (PLSA), the Investment Association (IA), and the Local Government Pension Scheme (LGPS) Advisory Board.
It is an independent group designed to improve cost transparency for institutional investors, and is responsible for progressing the work already undertaken by the Institutional Disclosure Working Group (IDWG).
While the IDWG was set up by the Financial Conduct Authority, the FCA acts only as an observer in this new partnership.
What was the purpose of the IDWG?
The IDWG was established to support consistent and standardised disclosure of costs and charges to institutional investors. It was created as part of a package of remedies following the FCA’s Asset Management Market Study.
Improving transparency, consistency and clarity
Launching the initiative, Mel Duffield, Chair of the CTI said: ‘It hasn’t always been possible for trustees to compare costs between different services because of a lack of clarity and consistency’.
The work of the initiative aims to introduce ‘a robust way to define and measure the full cost of investing’.
It intends to:
- Provide a clear voice for the interests of asset owners as we improve cost transparency.
- Run a pilot phase to test the new cost transparency templates and supporting technical and communications materials until January 2019.
- Following the pilot, roll-out the templates to the asset management and pensions industries to encourage fully transparent and standardised cost and charge information for institutional investors.
One of the FCA’s desired outcomes from its Market Study remedies was that a ‘standardised disclosure template’ should be designed to give institutional investors ‘a clearer understanding of the costs and charges for a given fund or mandate’.
The template would aim to enable investors to compare charges between providers, as well as giving them a clear expectation of the cost disclosure they will see.
The IDWG approach comprised five templates:
A main account level template which covers most product types, capturing data from providers in one place. It is populated by pulling through data from three sub-templates that include costs specific to certain asset classes.
A user template which summarises data from this account-level template so institutional investors can easily see the key data from their providers, as well as being able to segment data on issues like asset class or manager.
The report in which the IDWG presented its templates to the FCA also included recommendations on:
- What arrangements need to be in place to ensure the templates are maintained
- How to encourage providers to offer information using the templates
- How to encourage more users to request information in this format from their providers
The CTI will progress the work on templates started by the IDWG.
How do the templates relate to MiFID II requirements?
MiFID II, which came into force in January this year, introduced wide-ranging obligations for regulated firms. Consistency of communications is a big focus of the new Directive, which includes new rules on the way performance data used in charts needs to be displayed for retail and professional clients.
Commenting on the launch of the CTI, the FCA said that the IDWG had ‘not focused specifically on creating a method of delivering compliance with MiFID and other requirements’.
It did recognise, though, that ‘the IDWG templates have been designed to be aligned with the relevant disclosure obligations in MiFID II’ and that if they complete the new templates ‘in a comprehensive and accurate way, including all costs and associated charges’, that process should help firms to meet their MiFID II and other regulatory requirements.
What happens next?
The CTI is currently in the process of launching a pilot to test the templates with a number of schemes. Anyone interested in taking part in beta testing the template should contact email@example.com.
In its launch communications, the Initiative also stated its aim to set up a steering group and technical working group ‘soon’, with more to follow.
Ensuring you provide accurate, clear information to clients and prospects
Templates are one way of aiming to improve consistency and clarity in client and prospect communications. Ensuring you can access accurate data for inclusion in your templates is essential.
A degree of automation can help with this, giving you assurance that data is up to date and correct. You can read more about how automation can help you by clicking here.
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