Local Government Pension Scheme (LGPS) members have until Christmas to ensure that they are not classified as retail clients by their investment managers, under the MiFID II regulations which come into effect in early January 2018.
At present, LGPS funds are classed as professional clients, giving greater flexibility over where and how they invest, and are being encouraged to start an opt-up process to retain this status under MiFID II. Local Government Association (LGA) head of pensions, Jeff Houston, commented: “There are more than 90 local authority pension funds using over 200 asset managers, so it will be a huge logistical process to get everything done and dusted by January 3rd, 2018. If funds have not opted up and an asset manager is unable to deal with them on a retail basis, there could be a fire-sale of assets.”
It is only UK local authority funds that face this issue, as public service pensions are managed nationally or regionally in other European countries. Houston said that after lobbying by the LGA and the asset management industry, the opt-up process was agreed and has been standardised. “We have come up with a standardised process, with documentation, for every local authority to use when sending in opt-up requests to their managers, and it is shown on our website. Local authorities need to have started this by the end of September, to give enough time for managers to do all the necessary assessments by Christmas.”
On the positive side, MiFID II should help give investors a better view of investment costs, by disaggregating items such as the cost of research, which is currently bundled into transaction costs. Eoin Murray, head of investment at fund manager Hermes, commented: “When MiFID II comes into operation, it will bring more cost transparency which can only be a good thing. If investors do not have comparable information between managers how can they know if they are getting value for money.”