The drive to deliver greater cost transparency in the UK’s pensions industry has been gaining momentum for several years. It gathered pace with Markets in Financial Instruments Directives I and II and the increasing focus on value. Now the launch of the Cost Transparency Initiative has boosted it again.
CTI launched last November. It is a voluntary initiative being led by an independent industry group, supported by the Pensions and Lifetime Savings Association, the Investment Association (IA) and the Local Government Pension Scheme (LGPS) advisory board.
This collaborative effort follows on from the Institutional Disclosure Working Group (IDWG) report to the Financial Conduct Authority (FCA) in July 2018. The report recommended the formation of a group to encourage and support the use of cost transparency templates and monitor their use.
As its first step, the CTI will run a pilot phase to test user and main account-level templates covering most product types, and three sub-templates covering private equities, physical assets and ancillary services or custody. Following the pilot, CTI will gradually launch the templates with asset owners and asset managers, shining a light where lack of clarity and consistency have previously made it difficult for trustees to compare costs for a given fund or mandate. The supporting technical and communication materials will be developed through the pilot, ensuring asset managers have the information they need to complete the templates.
The FCA has welcomed the CTI, noting that it has the right experience, resources and market coverage to deliver results and build on the momentum the IDWG has created.
The Competition and Markets Authority has also supported the CTI. In its final report on the investment consultant market, in December, the authority recommended that fiduciary managers provide better and more comparable information to trustees on fees and performance, based on the templates.
In fact, the use of templates is already some way down the track among Local Government Pension Schemes. They have developed their own voluntary Code of Transparency for LGPS asset managers, working with the IA, to enable LGPS funds to obtain the data they require for listed assets. More than 65 asset managers have signed onto the code in its first year.
As the CTI develops, its staff will learn from, and build upon, that work to ensure the same strong uptake. In due course, the LGPS funds will transition to the IDWG templates the CTI is finalising, providing complete alignment across the pensions industry.
The pilot phase is now starting. CTI will be testing the five templates over the coming weeks. There has already been great uptake across asset managers and asset owners in support of the pilot. This testing prior to full launch will be particularly helpful for development of some of the more complex sub-templates, including for asset classes such as property.
The expectations of the regulators and government are rightly high in this area. It is important not only to encourage asset managers to report their costs and charges consistently and transparently, but also that the asset owners feel equipped to scrutinise and challenge what is reported to them; therefore, the CTI’s work on the demand side will be important. The initiative will work with pension schemes and trustees to advocate and promote the use of the templates through their asset manager selection and investment governance approaches.
The CTI will establish its board early in the new year and then will provide a fuller update on the activities of the pilot.
Mel Duffield is chair of the Cost Transparency Initiative and pensions strategy executive at the Universities Superannuation Scheme.