IA 'too conflicted' to develop Cost Disclosure Code: TTF

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The UK’s Investment Association, which represents the UK’s investment management industry, is “too conflicted” to be able to produce a viable Cost Disclosure Code, the Transparency Task Force has argued.

In a response to the IA’s draft code, the TTF, a campaign group that lobbies on behalf of investors, also argues that if the objective is to develop disclosure codes that are to “provide investors with the best possible outcomes”, then it should not be the IA that is responsible for drafting such a code of conduct for the industry.

In the TTF’s response document, Andy Agathangelou, founding chair of the Transparency Task Force and a member of the IA’s Independent Advisory Board on Costs Disclosure, created last year, notes that “the IA is a trade body and trade bodies have a primary duty of care for the commercial interests of their members”.

“As such, they are too conflicted to be responsible for the development of a costs disclosure code.

“The extent to which the Investment Association is conflicted with what is best for the consumer has already been seen by their unwillingness to wholeheartedly embrace the idea of putting the investors’ interests first; as evidenced when a clear majority of their members refused to sign up to a code that included the requirement to put the interests of the consumer first.

“That resulted in the departure of their chief executive, who had been attempting to introduce the ‘put the investor’s interest first’ Code, with unsurprisingly, a great deal of adverse publicity for the Investment Association, and consequentially for the asset management industry.”

“Similarly, the infamous ‘Loch Ness Monster’ research published last summer, and the barrage of criticism about it from right across the industry, will have undermined consumer confidence in the credibility of the Investment Association. This is exactly the kind of publicity that results in the Financial Services sector routinely being at the bottom of consumer trust ratings.

“Furthermore, the reputational damage this kind of behaviour causes must contribute to the UK’s appallingly low savings ratio – just 3.8%, which is the worst it has been since 1963.

“This is a huge problem for our economy and society as a whole today, and it has the potential to drive serious social unrest in decades to come – a systemic risk that must not be ignored by government.”

Agathangelou’s reference to “‘Loch Ness Monster’ research” concerns a report issued by the IA last August which found no evidence that hidden fees hit fund returns, and called hidden fees the “Loch Ness Monster of investments”, taken to mean that they don’t really exist in spite of regular reports of sightings.

In his response to the IA’s draft code on behalf of the TTF, released last week,  Agathangelou goes on to identify key points where the TTF believes the IA’s draft code is lacking:

  • There is no effective quality control over the cost data being gathered
  • There has not been any open scrutiny of the development of the code
  • The code is merely voluntary
  • The code is not comprehensive, ie, not all costs connected to the asset management industry that adversely impacts the investor are covered
  • It does not take care of retail investors at all
  • The terms used to describe costs do not have legally-binding definitions
  • The code has not been produced as part of an integrated, industry-wide effort

The IA launched its technical consultation,  Enhanced Disclosure of Charges and Transaction Costs, in March 2017, with a deadline for submissions of 19 May.

In its consultation document, the IA stated that:

“The code is, above all, a way of ensuring that the right data is available through the delivery chain:

“It will help those charged with pension scheme oversight, notably trustees and Independent Governance Committees, to access and scrutinise investment costs within a clear framework.

“It will provide those with responsibilities for building frontline consumer disclosure, particularly distributors, with the underlying data necessary to do so in a way that is compatible with MiFID II and PRIIP KID Regulation.

“It will facilitate efficient systems build within the asset management industry to ensure consistency that will assist firms as well as their clients.”

The IA also stated at the time of the launch of the consultation on its draft code that it “would like to work with the FCA to seek regulatory recognition for the new code in the FCA’s Conduct of Business Sourcebook”.

A final set of proposals is expected from the IA by the third quarter of this year.

The full TTF response document can be viewed here: TTF response to IA’s Draft Cost Disclosure Code FINAL