Pressure on fund managers to reveal costs

Pressure is mounting on investment fund managers to provide a detailed breakdown of all costs incurred by funds so that customers can see clearly the return on their investments.

The Irish Association of Investment Managers (IAIM), the industry body representing large investment institutions, is preparing to introduce a code for its members under which they will be expected to provide detailed statements to large company pension funds.

The proposed code recommends that clients should receive an annual statement detailing the management fee, the custody fee where this applies, any commissions paid to brokers and any other expenses such as stamp duty or auditing expenses.

The IAIM is working to have the code adopted by its members after July 1st, 2003. The association's general secretary, Ms Ann Fitzgerald, said the move was part of its efforts to introduce more transparency to pension fund investments.

It is envisaged that the code will initially apply to segregated pension funds - funds which are managed for one client and are not pooled with other investments. These tend to be pension funds of very large companies.

Some may also have monies invested in unit-linked funds where monies belonging to a range of clients are invested, typically with insurance companies. The code will not apply to this sector.

In a memo to its members, the IAIM has indicated it will open discussions with the providers of these funds to see whether this or similar information could be given to clients of unit-linked investment funds.

The IAIM is understood to have recently met the Irish Insurance Federation (IIF) in a bid to extend this level of disclosure to smaller companies and individuals who have pension fund investments.

An IIF spokesman confirmed the initial discussions but would not comment on what progress had been made. He added that the sector was already obliged to disclose issues such as fees to customers. The adoption of the IAIM code would yield even greater information for customers of insurance companies to help them to monitor their investments.

In its memo, the IAIM said that, while there may be some minor modifications to the proposal to provide a guidance statement on fees, it is clear that it is best practice to provide this type of disclosure.

It is also recommending that investment managers should give their clients a statement of policy on the management and control of ancillary investment costs. This should make reference to assets held by or through third parties where separate charges may occur.

"Because there are a multitude of investment vehicles through which clients make their investments, the code is non-prescriptive as to the format and detail of the information to be disclosed.

"However, the over-riding principle is that the information should be presented in such a way and to such a level of detail that a client is able to fully appreciate the impact of those ancillary costs on the overall investment return," according to the IAIM.