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For
Immediate Release: Wednesday 8 October 2003
IMA URGES MARKET-LED
SOLUTION NOT FURTHER REGULATION ON SOFT COMMISSION AND
UNBUNDLING RESEARCH
The Investment Management Association
(IMA) today urged the Financial Services Authority not to
introduce proposals for ending or restricting soft
commissions and bundled brokerage services.
In a speech to City practitioners,
Richard Saunders, Chief Executive of the IMA, said “We
believe a combination of market solutions and improved
transparency will offer a more flexible and dynamic way of
dealing with the issues highlighted in CP 176, rather than
the introduction of a series of new and detailed regulations
with unknown consequences.”
Mr Saunders said that the FSA’s
proposals raised serious issues of proportional regulation.
The costs at issue amounted to no more than one-fortieth of
one per cent on fund performance. But, he pointed out, the
potential costs to pension funds and other clients are many
times this. “That,” he added, “is without considering the
cost to the economy if business goes offshore.”
The speech went on to highlight a
number of “unintended consequences” of the FSA’s proposals.
First, the amount of freely distributed original company and
market research will fall substantially if the proposals are
adopted, affecting the efficiency of the market. According
to research carried out for the IMA by Charles River
Associates (CRA), dealing spreads could increase by as much
15 per cent. “That would imply increased costs of up to 20
basis points, dwarfing any savings within the 2 – 3 basis
points cost of bundled and softed services”, said Mr
Saunders.
Secondly, the CRA research concluded
that there would be a “significant probability of
relocation” of assets managed in the UK. With UK houses
managing some £900 billion of assets on behalf of overseas
institutional clients, the consequences for UK
competitiveness need to be considered very carefully.
The approach advocated by the IMA is
“one of disclosure and transparency”, said Mr Saunders. The
industry has already taken some significant steps in this
direction with the introduction, in July, of the IMA/NAPF
pension fund disclosure code, already adopted by 94 per cent
of fund managers. The code is designed to inform pension
fund trustees in detail about transaction costs, use of
brokers, soft commissions and other transactional
arrangements.
The text of Mr Saunders’ speech is
attached.
-Ends-
Richard Saunders, Chief Executive, IMA
020 7831 0898
Helen Stephenson, Communications Officer, IMA 020
7831 0898
Jeanette Hamster,
CardewChancery
020 7930 0777
Notes to editors:
1. The Investment Management Association
The Investment Management Association (IMA) is the trade
body for the UK investment management industry. It was
formed in February 2002 as a result of a merger between the
Fund Managers’ Association (FMA) and the Association of Unit
Trusts and Investment Funds (AUTIF). IMA’s members provide
investment management services to institutions (for example,
life assurance companies, pension funds, and individual
companies) and to private investors, through individual fund
management agreements and pooled products such as authorised
investment funds. Between them, IMA’s members manage over
£2,000 billion worth of assets.
2. The Charles River Associates study
The IMA commissioned Charles River Associates to conduct
an independent appraisal of the impact of the FSA’s
proposals set out in CP 176 (“Bundled Brokerage and Soft
Commissions”) The CRA carried out in depth interviews with
30 trustees, fund managers, brokers and independent research
houses and information providers. These were supplemented
with a quantitative survey (based on a 10 page
questionnaire) of 80 pension funds and fund managers.
3. The FSA proposals
The FSA proposals are summarised in CP 176 in the
following terms:
- “We propose to limit the goods and services, beyond
trade execution, that can be bought in the first instance
with commission or order flow. Specifically, we propose
excluding market pricing and information services, such as
dealing screens…..”
- “We propose that the cost of acquiring any other
services in a package along with trade execution should
not be passed through automatically by a fund manager to
his customers’ funds. This would apply in particular to
the use of commission to buy investment research.”
65
Kingsway London WC2B 6TD
Tel:
+44 (0) 20 7831 0898 Fax:+44 (0) 20 7831 9975
www.investmentuk.org
Investment
Management Association is a company limited by guarantee
registered in England and Wales Registered number 4343737.
Registered office as above.
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