Pat Sharman, Managing Director at KAS BANK in the UK, delivered an educational presentation on the importance of Cost Transparency for pension funds at the DC Workplace Symposium in London last week.
14 Oct 2019
In a two-handed presentation alongside Alan Miller, founder and CIO at SCM Direct, Pat highlighted the importance of Cost Transparency for pension funds. “You can’t manage your pension fund effectively if you don’t understand all the costs,” she said. In her view, “a greater focus on cost transparency is part of good governance”.
She went on to explain that transaction costs were previously unreported (they can make up to 25% of the total cost of ownership) and therefore a significant amount of costs were not taken into account. Transaction costs are incurred through the act of trading and are broken into two categories explicit – for example, stamp duty - (fairly easy to collect and analyse) - and implicit – for example, ‘slippage’ costs, which are implied costs that are complex and much more difficult to collect and analyse.
Pat also revealed that KAS BANK had been collecting a vast amount of data on cost transparency in the UK, and observed that many pension fund clients found that their investment costs were often up to three times higher than expected.
Fund managers are now obliged to provide information on costs to pension funds. Pat welcomed this development and added that the recent introduction of a standardised framework and templates on cost reporting, launched by the Cost Transparency Initiative (CTI), should do much to promote greater transparency. “It’s now much easier for pension fund trustees as they will have much greater visibility on costs, and this will potentially improve member outcomes,” she concluded. “But there’s still room to do more.”