56% of asset managers unprepared to meet DC transaction cost year-end deadline

Over half of asset managers believe they will not be able to provide full transaction costs for defined contribution trustees in time for the March 2018 year-end statements, according to research by LCP.

Its latest LCP DC Investment Survey found that 56 per cent of DC asset managers and pension providers do not think they will be able to provide full transaction costs for the whole year by the year-end in March 2018.

The new regulation, from the Financial Conduct Authority, came into effect in January this year and stipulates that transaction costs must be produced using a uniform methodology, with the aim of increasing awareness around transaction costs and the potential impact these have on retirement savings.

Although a majority do not feel confident to meet the March 2018 deadline, more than half of those surveyed do think they will be able to provide full transaction costs in time for 30 June chair statements.

According to fund managers, initial teething problems in reporting are due to a lack of data available as some elements of the FCA’s new methodology have not previously been monitored. As a result, managers have had to rebuild internal technology within less than 12 months.

LCP’s latest research, which surveyed 20 DC asset managers and five of the largest DC pension providers, did however reveal that a large majority (four-fifths) of providers have, or will shortly have, internal checks for reasonableness of transaction costs in place.

This is encouraging for trustees who rely on their providers as an aggregator and checker of this information, and reassuringly around 70 per cent of managers and providers are confident they will be able to provide data within eight weeks after each quarter end.

Commenting, LCP partner and head of DC Laura Myers said: “Transaction costs have recently come under the spotlight as a result of new legislative requirements that impact DC managers, providers and trustees. The FCA legislation mandating the calculation of transaction costs has been at short notice, and providers still need to build the internal technology necessary to record the required information. It is likely there will be further delays until complete disclosure of transaction costs is possible.

“Longer term, the news is more positive, with managers and providers are seemingly confident that transaction cost information will be available and in a format that can be understood by all involved in running and saving into DC pensions. In light of the intentions of the FCA’s regulation in the first place, that appears to be a productive step forward.”

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