NAPF response to FCA consultation on use of dealing commission calls for full transparency of costs and unbundling of research | PLSA

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NAPF response to FCA consultation on use of dealing commission calls for full transparency of costs and unbundling of research

26 February 2014

The National Association of Pension Funds (NAPF) today (Weds) published its response to the Financial Conduct Authority’s (FCA) consultation on the use of dealing commission rules.

In its response, the NAPF emphasised that the effective use of good quality research by investment managers benefits its pension fund members (clients of investment managers) as it should improve performance in a highly competitive market. As such it is important that there is a competitive research market covering small and large cap stocks in local and global markets.

The FSA’s thematic review however, highlights that there are misunderstandings, and in some cases flagrant abuse, of the current rules.  

The NAPF supports the proposed tightening of the Conduct of Business rules in relation to the use of dealing commission to purchase research, but does not believe they will be sufficient to ensure that the interests of clients are adequately protected or served and urges the FCA to press ahead with its wider review.

Paul Lee, Head of Investment Affairs, NAPF, said:

“How the cost of external research is passed onto clients should be clearly laid out and agreed as part of the contractual agreement between investment managers and their clients.  The current model leads to conflicts of interest, an over-use of and over-supply of external research – not all of which is necessarily of additional value – and generates a significant lack of transparency for clients of investment managers.

“In the short term, we believe disclosure by investment managers to clients on their use of dealing commissions, and how they are managing any subsequent conflicts of interest, should be greatly improved. This should provide clients with a simple way to quickly identify the costs carried by their investments and make it easier to assess the net return.  We look forward to working with other parties to develop industry best practice in this regard.

“Accompanying this should be a requirement for investment managers to attest that they have assessed the value of any research and only used commission to purchase what is necessary – encouraging them to manage their clients’ costs as carefully as they would their own.  This positive affirmation should be subject to independent assurance.

“In the medium term, we encourage the FCA to give further consideration to at a minimum full unbundling of research, with explicit ex-ante pricing by research providers, including brokers, for research services offered.  And we would like to see the FCA work towards an international prohibition on the use of dealing commission to purchase research – looking instead at how the industry can potentially move towards a cash model for research, accepting that research is a cost of doing business for investment managers.”

The NAPF will work with the FCA and others in the industry in considering how to move forward.

A copy of the NAPF’s response can be found on its website here .

Notes to editors:

The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.


Lucy Grubb, Head of Media and PR, NAPF, 020 7601 1726 or 07713 073023, [email protected]
Eleanor Bennett, Press Officer, 020 7601 1718 or 07825 171 446, [email protected]
Aimee Savage, Press Officer (interim), 020 7601 1722 or  [email protected]