The cost of transition management, a service used during big shifts in investment portfolios, has likely hit rock-bottom according to London-based consultancy Willis Towers Watson.

Speaking to Global Investors/ISF, Colin Rainbow, global head of transition manager research at the firm said it is “difficult to see commissions reducing further”.

It comes after a tumultuous few years for the practice, often used by pension funds to move investment portfolios between different managers or markets.

Global equity commissions of 8-10 basis points have been cut to 3-5 basis points or lower in recent times, while reputational risk and capital constraints have also forced major players out of the market.

Commissions can relate to equities and futures trades, mark-ups on bonds, or a project management fee either fixed or based on a percentage of the overall portfolio.

Credit Suisse and JPMorgan both departed the transition management business in 2013. BNY Mellon followed a year later.

As well as margin pressures, the practice – much like securities lending and other ancillary services offered by custodian banks – has also come under heavy regulatory scrutiny.

Back in 2014, UK watchdog the Financial Conduct Authority fined State Street UK’s transitions management business £22.9m ($37.5m) for undue mark-ups on transitions dating back to 2010.

Before that, brokerage and trading house Convergex abandoned the sector in Europe, Africa, Asia and the Middle East after agreeing to pay $150m in fines to the US Securities and Exchange Commission and Department of Justice last December for overcharging clients during transitions.

A review of the practice by the FCA then found that firms broadly met the regulator’s requirements; however the quality and effectiveness of controls, marketing materials, governance and transparency varied.

“It’s clear that most, if not all, providers have demonstrated increased oversight of their transition management arrangements to meet with higher levels of regulatory scrutiny and the demands from clients and their consultants,” Rainbow asserts.

In terms of fees, he says it’s important to compare like with like, which is often not easy to given the different transition models and their nuances, such as charges related to FX and derivatives. 

“It’s a competitive market place, and the transition managers have to balance their desire to win events with the cost of running their transition services.  Overall, it’s difficult to see commissions reducing further however,” he adds.

Since the high profile exits, some smaller providers have fared better than others when it comes to picking up business while new players, including Cantor Fitzgerald and Macquarie, have emerged.

Cantor scooped up former JP Morgan man Mike Gardner to lead its teams in New York and London.

One the positive benefits of the shrinking set of players, Rainbow admits, has been the distribution of talent from the exiting providers across the remaining players.

Interestingly through, he says the impact of a shrinking field of players hasn’t been significant.

“There is still a diverse of set providers, working in a competitive environment. One or two of the smaller managers have been able to increase their book of business over the past few years.” 

Meanwhile, firms which have chosen to exit may one day re-enter, the consultant adds, although such a comeback will be limited.

“Managed correctly, and embedded within the right business, transition management can be a profitable and important service offering,” he explains. 

“Providers need to be in the business for good reasons, acting in the interests of their clients.”