The Investment Association’s draft cost disclosure code lacks sufficient detail and fails to require signatories to itemise all the costs they incur from their clients’ funds, the Transparency Task Force claims.
But the TTF’s response to the IA’s consultation on its draft cost disclosure code also contains a lengthy and at times personal criticism of the IA’s independent advisory board, which it attacks as being not independent, closed to comment and under control of the IA, and attacks members of the advisory board for what it describes as inaccurate briefing to journalists.
The response contains a protracted description of how the independent advisory board’s meetings became secret, an issue which led TTF founder Andy Agathangelou to receive significant criticism from other transparency campaigners when he accepted a place on the board.
The TTF says the templates proposed is so lacking in detail that the majority of known costs would have to be put in catch-all columns marked ‘other costs’. This lack of prescription will lead to inconsistencies in disclosure, opening the way for asset managers to game the system, leaving trustees and IGCs unable to determine the extent of charges being incurred.
The TTF says the templates also contain too much non-core information. It proposes that the data related to investment returns and investment activity be removed from the main template and be provided as supplementary information.
The TTF also argues that any costs disclosure code needs to be conceived, initiated and owned by regulators rather than industry participants. Market participants can, and should provide input into the regulator’s work, it says.
It also criticises the code for not applying to funds run for retail investors.
The TTF also warns there is a risk that the IA Code undershoots the final template used for MiFID II and PRIIPs.
An IA spokesperson says: “The technical consultation deadline is today. All responses will be analysed and we will publish the outcome in due course.”
Excerpt from the TTF response to the IA draft code
Off to a bad start
On the morning of Monday 4th July the IA informed the TTF that the work of the Independent Advisory Board would operate without members of the Advisory Board being able to comment on developments until after the Draft Disclosure Code had been published, i.e. that its meetings would be ‘closed’. Note, it was the IA and not the Chair of the Advisory Board that stated the proceedings would take place on a completely closed basis. That decision was relayed by telephone call between the IA and the TTF just minutes before the start of the first meeting, well after the TTF had accepted the invitation to be involved.
That was a particularly difficult telephone conversation as much of it was spent discussing the fact that the IA were very unhappy with an article that had been published by the Financial Times (FT) the preceding Friday, on 1st July. The title of the FT article being discussed was: Fund chiefs ‘seek meal expenses from pension savers’.
The FT’s article had been written as a result of the publication by the TTF of its research on costs and charges on 1st July. That research was presented at a meeting to numerous industry bodies, journalists, market participants and various Regulatory officials.
The IA had been in dialogue with the FT prior to the FT’s article being published on the Friday evening ahead of the article being published online. The IA were unhappy about the FT’s planned article, claiming that it was inaccurate, sensationalist and damaging. Our understanding is that the IA were encouraging the FT to change the article prior to it appearing in print the next day. The FT, however, concluded that the article was factually correct and would be publish it regardless of how the IA felt about it, because it was factually correct.
Similarly, the TTF’s view was that if the proposed article was factually correct it should not be altered regardless of whether the IA found it unhelpful; that was the thrust of the TTF’s comments to the IA the following Monday, minutes ahead of the first meeting of the Advisory Board.
The decision that the Independent Advisory Board on Costs Disclosure be made to operate without disclosing its activity until after the Draft Code had been published may, or may not have been connected in some way to the FT’s Fund chiefs ‘seek meal expenses from pension savers’ article; for it is perfectly possible that the timing of the two developments were completely coincidental.
Given the very nature and purpose of the TTF, it was then profoundly bizarre to be involved with an Independent Advisory Board on Costs Disclosure without being allowed to disclose any of its activity; the situation couldn’t really be more ironic. Unsurprisingly, some within the TTF felt that the best thing to do would be to leave the Advisory Board and that certainly would have been the easiest thing to do, for sure. So, another difficult decision was to be made, and one that on balance concluded with the idea that if the TTF were not involved it could not have any influence for the benefit of the consumer; nor could it eventually report on the workings of the Independent Advisory Board, for the sake of transparency.
To make matters worse, various articles appeared in the press that seemed to indicate that the Independent Advisory Board members including the TTF had in some way been involved with the decision to hold meetings in secret i.e. as if some inclusive, consultative process had been followed; but that was not the case at all. In fact, it seems as though the non- disclosure decision had been made following discussions between the IA itself and either just the Chair of the Independent Advisory Board or the Chair of the Independent Advisory Board plus a very small number of Independent Advisory Board members. One thing is for certain – the TTF had not been party to any such discussion and were wholly against the idea of meetings being held in secret. The decision had been made; and was presented to the TTF as a fait accompli.
Interestingly, the TTF had to stop a misleading letter being sent to Professional Pensions on the ‘secret meetings’ matter; the original version of that letter …inferred that all members of the Advisory Board had agreed to holding closed meetings, which was not the case at all and had it been published would have perpetuated the misunderstanding that was developing in the market that the TTF had willingly agreed to ‘secret meetings’. That misunderstanding was undermining the integrity of the TTF and causing a totally unfair but completely understandable backlash against it.