September 9, 2019

Monday Morning Memo: Is the Assessment Broker Performance a Riddle for Fund Managers?

by Detlef Glow.

Last week, I came across the blog “Poor Broker Performance Reviews Leaving Fund Managers in the Dark” by Peter Rippon, the CEO of OpenGamma. This blog is based on a study conducted by OpenGamma around the topic of the use of reviewing processes and best practices to evaluate the performance of brokers and the resulting transaction costs within mutual funds. Even as the study was not conducted in a representative format, since the population of surveyed asset and fund managers was only 22, I would assume that the results can be used as a proxy for the wider asset and fund management industry.

So far, I had only a few concerns about the monitoring process of asset managers regarding implicit and explicit transaction costs, but the report by OpenGamma revealed that only 11% of the brokers surveyed actually assess how all their brokers are performing. The study also unveiled that 86% of the participants have a broker review process in place, but there was no consensus on how often these reviews should be carried out.

Despite the fact that new regulations are a big driver for reviews of broker performance, there seems to be a lack of specification regarding review frequency. Nevertheless, fund and asset managers do have strict fiduciary duties and should run this type of analysis quite regularly since all kinds of transaction costs (regular fees and expenses from the market impact of the transaction) are paid by the investor and not by the asset or fund manager. Therefore, it is key that the asset or fund manager runs this kind of analysis, as this is the only way to enable them to act in the best interest of the investor.

I understand to a degree that asset and fund managers are reluctant to implement this kind of analysis because this means that the company has to build up the respective resources, which will increase the costs on the company level and, therefore, will reduce the overall earnings. That said, it is hard to understand why the asset and fund management industry is not solving these issues on a voluntary basis, but is waiting for respective regulations instead. The pressure from both market regulators and investors with regard to product and service transparency is permanently increasing.


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This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. The views expressed are the views of the author, not necessarily those of Lipper or Refinitiv.

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