Several small to medium-sized fund managers could be forced out of the UK financial services arena if the FSA require firms to rebate "soft commissions", suggests the latest FSA document, unless the IMA can persuade the regulator to adopt a new comparative disclosure system.
Details of Policy Statement 04/13 - Bundled brokerage and soft commission arrangements: feedback on CP176 - published on Friday suggest some fund management firms are concerned small companies with assets of less than £50bn could be forced to sell, close or move their business overseas if the Financial Services Authority goes ahead with plans to impose the unbundling of soft commissions.
Fund managers, trade bodies and research firms responding to the FSA consultation document suggest the costs involved in separating research purchase, for example, from other elements of the fund management process, would increase if they were then required to rebate some client commission.
The Investment Management Association has pointed out the industry may be prepared to unbundle and disclose greater information to its clients about investment fund charges, so a reprieve – from the rebating of commissions – has been won at least in the short-term while the IMA tries to develop a disclosure proposition.
That said, the FSA has yet to be convinced this is sufficient to ensure clients are not being overcharged for services or products purchased which have no relevance to the fund management process.
In particular, the FSA wants to limit the use of commission to the purchase of trade execution and investment research, and some moves have been made to distinguish between the relevant costs, admits the FSA.
At the same time, however, firms point out technological advances now offer a single service covering both requirements, so assessing which elements can be labelled research may be complex.
One question which is also not addressed in this process is the need of these firms to cover the cost of staff, property, and many other elements of the overall fund management process, carried within soft commissions, which could bring the company down unless allowance is made.
So further analysis of the retail fund governance process is being conducted “to see if there are ways in which the retail consumers’ economic interests can be better served” says the FSA.
Research and analysis will be gathered by the IMA and the FSA before a final assessment is then made in December to establish whether the industry's work on enhanced transparency and disclosure will achieve the difference sought by the FSA and consumer groups.IFAonline
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