The Investment Management Association (IMA) has made a series of recommendations on the use of dealing commission for the purchase of investment research, in order to give end investors greater transparency, accountability and value for money.
The IMA said it recognises a number of challenges in the current UK model and that it wants to see an international approach to dealing commission rules. At present, asset managers can direct the use of dealing commission to research providers, following the unbundling of execution costs and research, but this approach has been criticised as lacking clarity and adding to the overall expenses of end investors, such as pension funds. However, the IMA said a purely cash-based research market, where asset managers pay for research out of their own pockets, could have negative consequences such as reducing SME research and raising barriers of entry for start-up managers, as well as putting UK asset managers at a disadvantage to competitors overseas. IMA chief executive, Daniel Godfrey, commented: “There are clearly challenges and conflicts inherent in the current business model and the IMA is open to radical change. But there are also advantages, and we should make sure that we are not inadvertently losing something valuable by changing the model without a thorough assessment of all the factors. In particular, we believe that radical change would need to be introduced on an international basis to avoid both arbitrage and damage to the UK’s competitive position.”
The IMA has put forward eight recommendations for a good regime for research payments. These include recommendations that any costs borne by clients should reflect a manager’s honest and professional assessment that it is in the interests of the client to bear that cost, and that managers should disclose to their clients any costs borne by them in a timely and meaningful fashion.