code developed by the IMA and the NAPF is in line with Myners' recommendations for greater transparency in pension fund charges
Pension fund charges will become more transparent to trustees with the adoption of a code of practice developed by the IMA and the NAPF.
The cost disclosure code is intended to provide a clear, comprehensive and standardised reporting format that will allow trustees to monitor and compare all costs incurred during the management of fund's assets.
In adherence to Myners' suggestions in his report published last year, the code will see managers disclose not just transaction costs but all costs incurred directly, or indirectly, by pension fund portfolios during the fund management process.
Level one of the disclosure policy addresses company-wide policies, in-house processes and procedures in relation to the management of costs incurred on behalf of clients. This is to be done on a half yearly or annual basis.
Level two of the process provides client-specific data, in particular identifying transaction costs to an extent and level of detail that provides meaningful information for trustees. Managers can only claim compliance with the code if they comply with all aspects of both levels.
To ensure statistics are put into appropriate context, it is necessary for trustees and their advisers to understand the rationale behind, and justification for, different costs and how these are accounted for.
There is also a need, the IMA has said, for disclosure of certain aspects of managers' trading processes rather than just numbers alone, that might be taken out of context.
Richard Saunders, chief executive for the IMA, said: 'Not only are costs different for varying investment strategies but the reliability with which different types of costs can be measured or estimated will also vary.'
Level one of the code concerns issues like dealing and methods, such as different types of brokers, programme trading and how the manager decides between these alternatives, as well as the impact these decisions have on client transaction costs.
It will also cover variations in rates of commission, the manager's process for negotiating rates and the impact on rates of investment in different markets, such as the UK versus overseas or bonds versus equities.
Soft commissions will be disclosed and, as part of the manager's internal policy, justification and control processes will be put in place to ensure compliance with FSA regulations.
Level two will deal with fund management fees and other income derived by the manager, such as in pooled funds with multiple fee scales. Custody costs borne directly by the fund and to whom they are paid, transaction values and commissions paid, taxation, stocklending and underwriting commissions will also be covered.
The IMA has proposed implementation of this code should take place in two stages, with the more generic level one to be used by the end of the year.
In order to install or amend administration systems to enable the more client-specific data of level two disclosure, which will be done half-yearly, groups will have until the first half of 2003.
Saunders said: 'The proposed timetable will be challenging for some but the IMA urges any members that already have some disaggregated cost data to seek to comply with the level two disclosure requirements from an earlier date.
'Pension fund trustees and their advisers are rightly concerned to monitor how their assets are being managed. This will, for the first time, give clear but detailed and specific information to pension fund clients, which will enable them to understand and question how their funds are being used, strengthening and improving the dialogue with managers.'
Ken Ayers, NAPF investment council vice-chairman and chairman of the working group that developed the code, added: 'This will give pension fund trustees access to a better, more transparent breakdown of exactly what they are getting for their money. It will help focus the minds, both of trustees and fund managers, on ensuring pension schemes offer value for money for millions of members. There is no question of partial compliance. Managers either comply with all aspects of the code or they do not comply.'
The IMA concedes it has no power to force its members to comply with these proposals. However, it points out that in some areas, the code does not take an absolute approach but instead defines a way of tackling the information needs of trustees and advisers.
It believes groups will be encouraged to comply due to the practicality of the code, which requires information groups already collect for regulatory purposes.
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