Included is a new methodology for the consistent calculation of Portfolio Turnover Rate (PTR), wherein investors must be told whether the PTR is high, medium, or low for a fund relative to others within a portfolio, and how it relates to transaction costs.
The association has also suggested the separate disclosure of product charges and transaction costs and a consistent calculation and description of ongoing charges.
Performance fees and one-off charges would be expressed separately under the new guidelines, while transaction costs would include a clear distinction between what can be known with certainty and what can only be estimated.
Charges and transaction costs would be separately identifiable.
Its proposals have been informed by three “key criteria” for the definition of disclosure:
- it should facilitate informed decision-making, by or on behalf of savers and investors;
- it should allow users to compare a range of product types and providers of like products; and
- it should be designed to serve the best interests of savers and investors.
The association has also proposed a “product neutral” approach for charge and transaction cost disclosure which it has suggested for use following April’s UK pension reforms.
The association has suggested that pooled vehicles use a consistent methodology and terminology for recurring charges and provide “clear definitions” of explicit and implicit costs.
It also said disclosure by UK pension schemes to scheme members should use standardised language and methodology with respect to charges borne by scheme members.
“Appropriate communication”
Finally, it proposed that pension schemes must agree an appropriate communication of transaction costs with the Financial Conduct Authority (FCA).
It is now working with the FCA and the Department of Work and Pensions to assist in the formation of cost disclosure regulation to be introduced in 2015 for the automatic enrolment pensions market.
This will result in specific rules for pension scheme assessments of transaction costs, and it is expected to be completed by “summer 2015”.
“We would also like to see a common approach developed for charge disclosure across different products as part of this work,” it added.
Daniel Godfrey, chief executive of The Investment Association, said: “We are setting out the building blocks for good disclosure in the context of a complex and evolving domestic and European regulatory landscape.
“The industry is working with governments and regulators to build a framework for comprehensive, meaningful and consistent information that can be made available across the whole investment and pensions market for the end investor,” he added.
