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Cost Transparency: More needs to be done to educate trustees

• New analysis finds that over 80% of those surveyed believe more needs to be done to educate trustees on cost transparency

• 32% of trustees don’t know or don’t factor in transaction costs when evaluating an asset manager

• Transaction costs can amount to 20% of Total Cost of Ownership (TCO)

29 Nov 2018

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80% of scheme managers claim not enough is being done to educate trustees on cost transparency. KAS BANK carried out a survey at the recent PLSA Annual Conference, where it hosted a Trustee Learning Zone on Cost Transparency. The learning zone focused on where we are with cost transparency in the UK pension industry, and how trustees could utilise cost data when assessing the performance of their asset managers.

The survey of 100+ pension professionals, also revealed the current sentiment on cost management with 32% of attendees either not knowing if they did, or explicitly do not factor in transaction costs when reviewing asset managers. Following the hour long educational session with the trustees, there was a 30% increase in the number of attendees saying they would now scrutinise investment costs, including transaction costs, when evaluating their asset managers, now that they had a better understanding of the subject and the associated benefits.

Cost transparency can offer a comprehensive overview of a pension scheme’s administration and investment costs, providing a holistic understanding of the underlying costs incurred within a scheme. Access to this information can help trustees make more informed decisions analysing their cost data, in context of the pension scheme strategy and/or performance of their existing or potential asset managers. The benefits of widespread cost transparency implementation by pension schemes has been made clear in the Netherlands. KAS BANK, which services around a third of the Dutch pension market, found that the average Total Cost of Ownership (TCO)[1] per pension scheme it services has decreased by 37%[2] between 2015-2016. These findings coincide with the introduction of a cost transparency framework, and widespread consolidation of Dutch pension schemes.

There has been an increasing focus on cost transparency over the last 2 years in the UK, with the FCA forming the IDWG, a cost transparency industry task force, in late 2017. The IDWG was tasked with developing a workable industry wide standard template for the collection of costs. The PLSA are now leading the way with the announcement of the Cost Transparency Initiative (CTI), supported by the Investment Association (IA) and Local Government Pension Scheme Advisory Board (LGPS SAB).

The CTI will be responsible for the new cost transparency framework going forward, ensuring a smooth implementation process hand managing the ongoing maintenance of the templates. The templates will give trustees a clear and standardised approach to monitor and scrutinise costs across their suppliers.

An industry push is needed to ensure that the various market participants are aligned. However, only with sufficient education will cost transparency be properly and successfully implemented in the UK. KAS BANK is taking the lead to support trustees, through a number of initiatives including the recent Trustee Learning Zone at the PLSA Annual Conference, the sponsorship of the PLSA Made Simple Guide on Cost Transparency and has now signed up as the PLSA Education Partner for Cost Transparency for 2019. More details will be announced by the PLSA in their Viewpoint magazine December 2018.

“We are committed to supporting UK pension schemes, to both educate them on the subject of cost transparency, and support the collection, analysis and reporting of costs and charges, helping them to meet their governance and regulatory obligations. We are delighted that the PLSA are leading the way, supported by the IA and LGPS SAB, with the announcement of the CTI, which will provide the pension industry with a much-needed standardised framework to ensure consistency and clarity on costs and charges”.

Pat Sharman, Managing Director, KAS BANK

[1] The Total Cost of Ownership is the sum of the pension management costs and investment costs.

[2] The reduction in TCO is calculated by the combined decrease in average Pension Management Cost and in average Investment Cost.

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Scott Foster

Contact Scott to find out more

Scott Foster

Product Specialist, Cost Transparency & Benchmarking
+44 20 7153 3664