Perceptions of CTI
Since its launch in November 2018, awareness and adoption of CTI templates has grown. Asset owners are starting to use the data to challenge investment managers and focus on value for money.
Research from the CTI earlier this year, published in ‘Perceptions of the CTI Framework’, concluded that awareness and use are increasing but that work remains. 79% of the schemes surveyed are using CTI templates, compared to 56% in May 2020. 89% found the CTI framework easy to access, 74% found it easy to understand but only half found it easy to use. When asked whether the CTI will be beneficial to the scheme, almost three-quarters agreed.
While the research highlights the positive impact of CTI, it also raised several issues and areas for improvement, many of which fall under the heading of data quality and comparability. Specifically:
· Gaps in data, particularly in relation to transaction costs
· Accuracy
· Managers using different methodologies to calculate costs
These issues resonate with CEM, where we have stepped up our work in this area over the last year, collecting, validating, and benchmarking using data delivered by the templates. The templates are changing the way we work, saving our clients time and allowing more granular analysis on cost and performance.
Garbage in, garbage out
Manager goodwill and standardised templates don’t guarantee consistent data though. Here are some of the common issues we encounter:
· The templates do not work well for new or terminated mandates.
· Average assets are often calculated incorrectly.
· Failure to report invoiced fees or to reflect rebates.
· Struggles with the level of granularity, particularly on transaction costs.
· Data provided for the wrong period.
· Reporting at a fund level rather than a client level (e.g., providing assets or turnover for the whole pooled fund, rather than the clients’ holding within that fund).
· The templates don’t fit every mandate and are therefore difficult for managers to use. For example, property investments often involve a range of complex implementation strategies that are not captured adequately by the templates.
There are things we can do to improve. The most important are:
Template design:
There are some simple fixes that would help, for example in the identification of new or terminated mandates and clarity around part-year data. It would also be helpful to know if a mandate is pooled or segregated. In particular, there are various one-time questions that would help in the categorization of mandates, e.g., asset class. Interestingly, the machine-readable version of the template asks some questions that are helpful that are not included in the main template.
Template range:
we need a broader range of templates that are designed for different circumstances.
Template guidance:
More guidance would be helpful to really ‘nail’ methodology issues.
Data validation:
We are on a journey with the templates and the quality and consistency of the data will naturally improve over time. For the foreseeable future what we need are robust systems for data validation. Validating the data means checking that templates are complete and that the data is accurate. Where there are questions, it means interacting with the investment managers to resolve the issue. This is one good reason for asset owners to work with external specialists who should have both the toolset and the accompanying database to perform reasonableness checks. Data should ideally be compared with a) prior years and, b) similar mandates. It is therefore easiest to perform these reasonableness checks where there is a wide database to compare against.
Even the most sophisticated automated checks can miss things and there are nuances and degrees of understanding that need to be applied. Our experience is that manual intervention is often necessary. This can be painful and absorb the time of experienced team members. The ambiguity surrounding certain items means it is still easier to pick up the phone to the manager to make sense of the data.
We applaud what CTI has achieved in creating a common language for cost disclosure. Some managers aren’t yet fully conversant in all aspects of the language, but most have shown a willingness and desire to learn, which is welcome and pleasing to see.
John Simmonds, Client Relationship Manager, and David Jennings, Client Relationship Manager, CEM Benchmarking
