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NAPF urges clampdown on dealing commission
26 February 2014
Wants FCA to ban use of dealing commissions to purchase research
The UK National Association of Pension Funds (NAPF) has called
for more transparency on the use of dealing commissions to buy
research following a consultation by the Financial Conduct
The NAPF said that although the use of good quality research by
investment managers benefits pension funds, it pointed out that
the regulator's thematic review highlighted misunderstandings
and abuse of the rules.
The association also said that the proposed tightening of rules
over conduct of business are not sufficient to ensure clients'
interests are properly protected. In light of this, the NAPF
urged 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."
Lee called for improvements to investment managers' disclosure
to clients on their use of dealing and their management of
subsequent conflicts of interest.
"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."
"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 association will work with the FCA and industry
participants to consider to move forward.