Transparency campaigner and Former FCA Institutional Working Group chair Dr Chris Sier has attacked figures from governance services provider CACEIS that suggest the average overall total cost of ownership (TCO) for UK pension schemes stands at 70bps.
Sier, who is chairman of ClearGlass, which also providers charge analysis services, says a more accurate figure, based data set of 200+ schemes is an average 59bps TCO, with a wide range around that. He argues presenting a single figure without a range around it can be misleading, adding that size of fund, structure, whether the scheme is DB or DC,and whether there are segregated or pooled mandates, will also all be factors in a scheme’s TCO. He also says stock lending has been omitted from the CACEIS calculations, and questions why CACEIS has not disclosed the number of schemes within its research.
CACEIS says its data reflects UK cost transparency clients across DC and DB, although predominantly DB, with average pension fund size of £7.85bn. Its data set includes data from 202 asset managers across 1,714 funds. This includes schemes with both segregated and pooled mandates. But it declined a request from Corporate Adviser for the number of schemes within the sample ‘on client confidentiality grounds’.
Sier also questioned CACEIS’s decision to reference the fact that the average figure in its research is below the 0.75 per cent DC charge cap, when the majority of its the data is DB.
CACEIS says: “The DC charge cap has been a relative benchmark that the industry has kept in mind from a cost perspective. Referencing the DC cap (there is nothing similar for DB) is an imperfect way of assessing where costs lie as it’s where the DWP thinks it should be.”
Sier says: “Regardless of the sample size, quoting the [TCO] numbers as general and applicable to all funds is irresponsible, as the average size of the scheme in the sample is super large. There are less than 100 DB funds of £7.85bn or more in the UK out of a total of almost 5,500.
“The data is in no way comparable between DB and the DC charge cap, as the DC charge cap does not include transaction costs. Further, DB schemes, especially those at large size, use high allocations of segregated mandates and illiquid asset classes. DC funds use almost entirely pooled fund structures and no illiquids. This further compounds the inappropriate comparison.
“Imagine a DB fund with less that £100m AUM – the vast majority of schemes in the UK – and an average cost, from my data, of asset management of 54bps, of which you have only collected a fraction in the past, the Direct costs, 37bps. You’d think, ‘wahay, job done – we are so much lower than the implied 58bps cost of asset management indicated by the Caceis data.”