The UK Financial Services Authority (FSA) conducted a review of conflict management practices at asset managers and challenged commission payments for management access earlier this month. Sources indicate that the FSA is planning to follow up with a letter in November to asset managers stating that they should have very strong reasons for arguing that corporate access counts as research.
In its review, the FSA found that some asset managers were allocating as much as 30% to 40% of commissions to management access. Hedge funds were singled out as particularly likely to be paying for management access with commissions.
The head of the FSA’s asset management sector team, Tony Hanlon, was quoted in an article in Financial News earlier this month: “There is no good argument why clients should have to pay for manager access.”
A source who recently met with senior FSA staff reports that they plan to follow up on their comments with a letter highlighting their concerns about commission payments for management access. They are particularly opposed to the classic concierge, “diary management” form of the service, according to our source.
A report issued last year by the European trade association for independent research providers, EuroIRP, argued that management access does not meet the UK definition of research and should not be payable through commissions. Unlike the U.S., corporate access in Europe is tightly controlled by the largest investment banks, with little competition from smaller brokers or independents. EuroIRP suggested that if management access were not paid for by commissions, then the playing field would be more level for independent providers.