Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • May 2014
05

Pensions Institute calls for clarity on investment charges

Open-access content Wednesday 28th May 2014 — updated 8.24pm, Wednesday 6th May 2020

The Pensions Institute has claimed that as much as 85% of transaction costs in some investment funds are being hidden from investors, and called on all asset managers to reveal their full expenses.

In a white paper published yesterday, the institute concluded investor returns were hurt by hidden costs in investment schemes such as mutual funds at least as big as visible costs in actively managed funds.

The paper suggested the concealed costs were mainly made up of assets and would be difficult to disclose. However, the remainder was taken up by visible costs such as commission, taxes and fees, which could be calculated, David Blake, the director of the Pensions Institute said.

'The hidden non-cash costs would be more challenging to calculate, since they involve the analysis of information that might not necessarily be automatically captured by the investment manager's own systems,' he said. 'Nevertheless the issue is whether fund managers systems could be configured to generate similar information on a cost-effective basis.'

No good reasons have been put forward for why all the costs of investment management should not be fully disclosed, he said. If total costs are not ultimately disclosed in full, it was questionable whether there could ever be effective and meaningful caps on investment charges.

'They are after all genuine costs borne by investors,' he went on. 'There is little point in requiring transparency where the reported measure for "costs" does not include all of the costs, or in the short-term, as many costs as could be reported on an efficient basis.'

Blake told The Actuary: 'Some of these costs are hard to measure, in the paper we talk about level 1, level 2 and level 3 costs.'

He said: 'Level 1 costs are costs that asset managers should know quite well, these are visible costs. Level 2 costs are not publicly reported, but it shouldn't be too hard for those costs to be revealed however, it would require the asset manage to buy new software.

'And Level 3 costs are known as market impact costs and they are going to be much more difficult to measure. We would need some agreement in the [global asset management] industry that it would be important to report those costs and it would have to agree how to do it.'

The paper has suggested the introduction of a staged approach towards full disclosure of all transaction costs.

In the initial stage, investment managers should be required to report all visible cash costs involving commissions, taxes, fees, custodial charges and acquisitions costs, together with the hidden cash costs of transactions.

'All these indirect costs relate to the efficiency of investment management proves and all good investment managers should have an estimate of their size,' Blake said. 

This article appeared in our May 2014 issue of The Actuary.
Click here to view this issue
Filed in
05
Topics
Investment

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Catastrophe Modelling Analyst - London Market Broker

London, England
£40000 - £50000 per annum
Reference
145925

Senior Catastrophe Analyst

England, London
£65000 - £75000 per annum
Reference
145924

Life Actuary - Financial Reporting - Day Rate contract

Negotiable
Reference
145923
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2023 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ