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Cost Transparency

20 October 2017

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Communication and explanation is vital.

Johan Cras managing director of Kempen, speaking at the annual PLSA conference in Manchester on Thursday addressed some of the issues facing the investment and pensions industry once cost transparency becomes a regulatory act.

With effect from 3 January 2018, transaction cost disclosure in the workplace must be visible.

The regulations set out by the FCA will primarily effect those involved in the DC workplace pensions market.This includes those who provide services in that market, such as pension providers and asset managers, and the governance bodies of pension schemes, such as trustees and Independent Governance Committees (IGC)

But what effect will it have?

Johan suggests that once the "can of worms has been opened" the industry won't know what to do with the information and fears that terms and costs will be misunderstood.

Understanding costs are vital, it is therefore key to communicate costs in a relative way.

If an investment is costly it does not necessarily mean that schemes investments are operating inefficiently.

The cost needs to be placed in to some context, for instance it costs more to transact in an emerging market, but if the market is performing well the returns are value for money and that is key. Value for money is key and not cheapest is always best.

Alison Bostock, PTL, in a discussion earlier in the week also agreed that there might be a negative impact regarding cost transparency, in that there needs to be clear understating of what the costs are and why? but in the same breath see positive sees the potential in "shining a light" on things that might be wrong.

Alison says that taking a closer look into investment fees is important, schemes can check if they are paying the right cost for the services that they receive, are they getting value for money? They will be able to see trading efficiency and get a better sense of what's going on.