UK Regulator Defends Fee Disclosure Proposal

Gay Huey Evans, head of the market and exchange division of the Financial Services Authority (FSA), made the assertion after the UK regulatory body came in for criticism for its reform notions aimed at forcing a full disclosure of brokerage costs by fund managers, according to the Financial Times. The proposal includes disclosure of soft dollar or “soft commission” practices.

Evans said it was important for the regulator to examine the costs fund managers incurred on behalf of their clients. “Just because the costs may be minimal does not mean we should not be looking at them,” she told a conference of the Investment Managers Association (IMA), according to the newspaper.

The FSA has proposed that fund managers’ brokerage costs through commissions for services ranging from research to access and flotation should be “unbundled.”   The market regulator is concerned that by lumping charges for various services into one opaque sum, hidden costs have been passed through by fund managers to clients. The regulator is also waging war on “soft commissions” – the practice of fund managers directing dealing business to brokers who supply them with services or goods. These include such services as market information systems.

However, the IMA has criticized the FSA for pursuing reforms with “unquestionable risks,” even though an FSA-commissioned study concluded the detrimental effects of unbundling were relatively limited.

The average commission rate in 2002 was 14 basis points, according to Oxera, a consultant hired by the FSA. This included 3 basis points for research.