Think tank New City Initiative (NCI) has called for dealing commissions to be included in the total expense ratio of a fund so investors can clearly identify the total costs charged against their investment in any year.
In a response to the Financial Conduct Authority’s consultation paper on the use of dealing commission (CP 13/17), the NCI's chariman, Magnus Spence, said: 'We would also encourage the FCA to require investment managers to disclose the level of dealing commissions incurred, as a percentage of the assets under management, in the Key Investor Information Document (KIID) in each of the preceding three years.
'Additionally, we would recommend that a detailed breakdown of the research costs is included in the KIID, showing the largest 10 suppliers and the nature of the research received.'
However, Spence (pictured) also said the NCI would 'strongly oppose' any steps towards the complete ban on charging research costs to funds, because the combination of clearer rules, as proposed by the FCA's consultation paper, and more transparent reporting would 'help eliminate conflicts of interest' between investment managers and clients when it comes to the use of dealing commissions.
Any ban on permitting boutique fund managers to pay for genuinely value-added research out of client money would be detrimental to smaller firms and, ultimately, their clients, Spence said.
'Smaller funds often produce industry-beating performance. Not only that, they provide crucially-needed competition to large players, giving investors wider choice when selecting funds,' Spence added.
Conversely, the chairman welcomed 'any measure which brings greater clarity to the ways in which dealing commissions can be used to pay for research.'