LGPS reforms anticipate FCA recommendations for asset management

The Financial Conduct Authority (FCA) is recommending that the Department for Work and Pensions (DWP) continues to look at removing the barriers to pension fund consolidation and pooling, as part of its asset management market study.

The FCA said it recognised the benefits of asset pooling but said that it did not think it was necessary to make asset pooling mandatory for DC and non-DC pension funds. In consultation after its interim market study, various respondents referred to existing ways of pooling pension fund assets, including authorised contractual schemes (ACS), which are being used as part of the LGPS asset pooling reforms by a number of asset pools.

In its final report on the £7 trillion UK asset management market, the FCA has also called for greater transparency over investment fees and costs. In its interim report, the FCA put forward using a single all-in fee for asset managers, which includes transaction costs as well as investment management fees. This proposal echoes an existing development in the LGPS sector, namely the code of transparency for LGPS asset managers. Under this initiative, asset managers will voluntarily comply with the code and disclose their costs under templates for either segregated mandates or pooled funds. These templates include transaction costs, any income for the manager from stock lending and management fees.

In press and commentator reactions to the report, the FCA has been seen as pulling back on some of its initial recommendations, and asset manager share prices rose after its release as the report recommendations were not as onerous as some feared. Aberdeen Asset Management chief executive, Martin Gilbert, commented: “I strongly welcome the FCA’s market study as it provides clear guidance on how the FCA wishes the industry to operate in the future. Its recommendations to improve investor protections through better governance and to drive competition through greater transparency of fees and fund objectives are constructive and sensible.”