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FCA sets out expectations for investment managers on dealing commission

Fri, 09/05/2014 - 12:08

Investment managers should only use client dealing commission to pay for substantive research or costs related to executing trades, according to a Financial Conduct Authority (FCA) policy statement.

Forthcoming changes reinforce the current rules and provide greater clarity on what investment managers can pay for using client dealing commission – worth approximately GBP3 billion per year.
 
Firms that already meet the rules will not need to make significant changes to the way they operate.
 
FCA chief executive, Martin Wheatley, says: “Investors should be confident that dealing commission is only used to buy execution or research services that deliver real value. These changes offer firms a real opportunity to show they put their clients first and strengthen the industry's reputation for transparency.”  
 
The FCA expects firms to ensure:
 
• They are acting as good agents and taking proper account of investors' interests;
• They spend their clients' money as though it was their own, seeking to manage costs with as much tenacity as they pursue returns; and
• Clients are given easily understood information on the risks and costs of the service, and investment decisions reflect their stated objectives.
 
The changes on dealing commission come into force on 2 June and are a result of industry consultation. They will prevent investment managers using dealing commission to pay for access to senior staff at firms they invest in (corporate access).
 
The changes also clarify which costs investment managers can pass on to their clients through dealing commission, including specific guidance on mixed use assessments, where substantive research is bundled together with services that firms cannot pay for using dealing commission. Past reviews found that controls on how dealing commission is spent could be improved and in 2012 the FCA asked firms to confirm their controls were effective.


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