The FSA has flagged plans to stop fund managers accepting research and analytical tools from brokers...
The FSA has flagged plans to stop fund managers accepting research and analytical tools from brokers as soft commissions on execution deals placed with them.
Its Consultation Paper 176 'Bundled Brokerage and Soft Commission Arrangements' said UK fund managers paid about £2.3bn in commissions from clients' funds in 2000, with as much as 40% of this going on additional services other than the cost of trade execution.
Dealing screens, computer terminals which supply market news and data, account for up to 57% of soft commission credits, the FSA said.
'As with all charges, commission costs affect investment returns. But since commission is charged direct to client funds, transaction by transaction, the total cost to each fund and the value of the additional services required remain opaque,' the FSA said in the document.
'Fund managers can therefore pass on some fund management costs to client funds with minimal scrutiny.'
The FSA said this creates a significant conflict of interest for fund managers, and proposed limiting the goods and services that can be bundled with execution.
The supply of dealing screens would be specifically targeted, the regulator said.
The cost of acquiring services other than trade execution should also not be passed onto client funds automatically, which should increase transparency and accountability to clients, the FSA believes.
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