The UK’s Investment Management Association’s first open forum on commission management had a lively discussion on whether the asset management industry needs to change the way it spends client commissions on research. Although no decisions were made at the forum, it appears that the IMA will recommend asset managers improve their commission management process.
The forum, held July 24th, was the public meeting since the IMA appointed a blue ribbon panel to oversee its proposed white paper on commission management. The white paper is in response to regulatory concern about conflicts in the procurement of research.
According to an article in Money Marketing, Global fund managers spent £14.3bn ($21.5 B) through bundled commissions in 2011, according to one of the panelists, Neil Scarth of Frost Consulting. He estimated around £4.3bn ($6.5 B) was used to pay for research, half of which went to third party research providers.
Scarth argued that asset managers who continued to opt for bundled trading were putting themselves at a competitive disadvantage because the pool of research they were accessing was shrinking in size, and because unbundled providers who took research from a variety of sources had greater options for seeking out alpha.
However, many UK asset managers believe that they are already in vanguard for commission management reform. Delegates at the forum pointed out that the UK is already more transparent on broker commissions than other jurisdictions and going for further transparency could put the nation’s asset management industry at a competitive disadvantage.
Nevertheless, IMA representative Guy Sears pointed out that asset managers have a big disparity between the way they manage their own money and the way client commissions are managed:
”Any firms asking themselves now that if the controls they have in place for spending, say £10m, if it goes through P&L then it goes through one side of the business through prior year budgets, through the year through budgetary control, MI, finance director oversight, but on the other side of the business goes through a CIO, what is firm doing to show the controls in place are adequate to be accountable for the spend.”
This promises to be a lively debate, and we look forward to how this plays out as the IMA and its panel develop their white paper, scheduled for release in October.