Interim Report of The Independent Advisory Board on the Investment Association’s Investment Cost Disclosure Code


The Independent Advisory Board to the Investment Association (IA) was set up to provide advice and challenge to the Investment Association in respect of their work on production of a Code on investment cost disclosure and transparency.

The Independent Advisory Board is made up of senior figures* from the pensions’ world representing a range of stakeholders but with a particular focus on the intended users of the code. The members of the Board can be found here:

Specifically the terms of reference for the Independent Advisory Board are as follows:

  • To review the outputs of the technical working groups in order to advise the IA as to whether they should reasonably meet client expectations.
    To advise on the form and content of disclosure to UK pension scheme trustees and IGCs.
  • To challenge The Investment Association where the Independent Advisory Board feels that the output could be enhanced, whether in terms of scope or quality of outputs.

These support our overarching objectives of advising the IA so that it can:

a) run a thorough consultation process, capturing the views of users and responding to those views; and
b) deliver a high quality Code, while accepting it will need to evolve over time.

The IA has recently released its consultation on the disclosure Code with a view to finalizing the Code later in the year. The Board believes it appropriate to issue a brief progress report to coincide with the issuing of the consultation.

Use of the Code

We believe it is important to stress that we consider the primary clients of the disclosure of costs to be governing bodies such as trustee boards and IGCs rather than individual members; bearing in mind that cost is merely one element, albeit a very important one, to the understanding of the value of fund management services. However we also believe the industry is on a journey towards improved transparency and we will be encouraging the IA to ultimately work on an approach to cost disclosure for members and individual investors.

The Code is important in ensuring comparability and consistency of data, across time and between schemes and providers, and the role of the Code will be seriously undermined if it cannot deliver that consistency. Nevertheless, while the cost calculations provided by the template may give the impression that a single meaningful cost number can be provided (combining implicit and explicit costs), the Board is wary that the number could be an over-simplification and/or be taken out of context. In particular, the calculation and the use of implicit costs on a consistent basis can be challenging. The FCA are consulting on this (CP16/30) and are expected to report back in Q2 2017.

While provision of clear and transparent cost data is crucial to informed decision making, it is equally important that there is high quality governance overseeing the schemes (or other pension arrangements) using the fund management services so that the data provided can be judged appropriately.

Report on progress

The Independent Advisory Board, with exception of one Board member**, has been encouraged by the progress made and view the direction of travel to be broadly correct. We have been particularly focused on the need for comprehensive disclosure of all costs, in order to help build trust in the Code, and we have found the IA willing to engage and assure us on this point.

We have had a number of detailed conversations with the IA on a range of topics in order to ensure that we have a good understanding of what is being proposed as well as encouraging a comprehensive yet easy to use Code that will meet the needs of investors. Importantly we have brought a number of challenges to the draft Code resulting in further consideration and as required amendment by the IA, for example in areas including performance benchmarks, turnover calculations, stock lending, derivatives and financing costs.

At this point we should also acknowledge the work of the Scheme Advisory Board for the Local Government Pension Scheme (LGPS SAB) in developing a disclosure Code – both the IA and the Independent Advisory Board have benefited from the diligence and effort that the LGPS SAB put into the development work.

The IA has endeavoured through the process to be collaborative and responsive to the challenges and questions raised by the Board. However the Board has had reservations on a number of issues which it is appropriate to make explicit:

We are not endorsing or signing off the Code but view ourselves as helping guide the IA to produce a better quality Code. We welcome the fact that the IA is consulting in order to garner a wide range of views on the work so far.

There has been significant external challenge on the fact that the IA has been doing this work at all, with the suggestion that this is the work of regulators. While the Board has no views on this issue, members of the Board have a shared ambition that it can help improve outcomes for customers regarding disclosure. As such we have sought to work constructively with the IA, believing that a Code that gets good buy-in from the fund management community and that addresses the practical issues surrounding implicit transaction cost calculations for example is likely to be beneficial to investors. We also note that the FCA has recently run its own consultation on transaction cost disclosure – however the IA views this as being at a different level of detail and therefore complementary to their Code.

The Board was formed in the summer of 2016 – as a result we believe that we were brought into the process at a relatively late stage and therefore our ability to change the framework radically, should that have been required, was constrained. For example we have not focused on the granularity of the cost disclosure proposed by the Code which has more or less followed the LGPS template. However it may well have been beneficial to review a range of options and proposals rather than just one main version had more time been available.
Similarly, the number of meetings has been limited due to the time constraints of the Board members. There is wide ranging expertise on the Board and we have probed at a significant level of detail, however finding enough time to fully explore the responses has been difficult.

While recognising that it is not the role of IA to police the Code, the Board is concerned that without some form of external check the numbers resulting from the Code may not be able to secure the full confidence of clients and stakeholders.

In August 2016, the IA published a report “Investment costs and performance – Empirical evidence of UK fund industry delivery” which concluded that there was zero evidence that funds’ returns are affected by hidden fees. As we reported at the time, we were neither consulted on nor endorsed this report.

Notwithstanding the above points, the Board believe that the existence of an Independent Advisory Board has been beneficial to the evolution of the Code. Ultimately the success of a Code such as this will be dependent on buy-in from both providers and users, and therefore getting user input into its evolution, even if later than might have been ideal, is important. We believe that the Code is sufficiently well developed that a wider consultation is timely and necessary.

Future work

The Independent Advisory Board will continue to exist and work with the IA while the consultation runs its course.

We will continue our investigations to help ensure the proposed Code is robust in terms of including all costs that can get taken out of savers’ funds and also robust in terms of not being open to an inappropriate variety of interpretation. Given that, at the highest level of aggregation, cost disclosures from one fund manager could be combined with those from another fund manager, it will be important that IGCs and trustees can rely on the disclosures being consistent and therefore able to be combined without introducing lots of extra caveats.

Whilst we expect the responses to the consultation to be provided to the IA directly, the Board is happy to be contacted separately at the email address:

After we and the IA have had time to consider the IA’s proposed response to the consultation, we will provide a final report commenting on the extent to which the Advisory Board’s objectives have been met throughout the whole consultation process. The timing of this is likely to be in the summer of 2017.

Information on the Independent Advisory Board including its membership and the minutes of meetings can be found at

Mark Fawcett
27 March 2017

*The members of the Board are participating in a non-executive capacity and are not remunerated.

**Andy Agathangelou representing the Transparency Task Force, does not endorse this interim report for a variety of reasons including that he believes that a) the code should also deal with Retail investors and b) the FCA should be responsible for creating a costs disclosure framework, not a trade body.