The FSA has published the results of its thematic review of commission practices at a sample of investment management firms and brokers conducted during Q3 2007. The FSA examined the following key areas:
- Whether investment managers were securing value for money for their clients in respect of execution and research spend including the agreement of a split of commission rates into execution and research components. Here the FSA found that firms had entered into useful discussions in respect of the split of commission into research and execution elements and were reviewing value for money received.
- The adoption and operation of commission sharing arrangements. The FSA saw a variety of practices in this area. The brokers generally viewed this as an issue for the investment manager.
- The goods and services purchased using commission and the process for ensuring that these met the new definitions of execution and research. Here the FSA found that payment for goods and services was the area where there was the greatest variety of approaches by investment managers. The FSA noted that many investment managers had taken the view that market data services did not meet the requirements of the rules and paid for those services themselves.
- The disclosure of the goods and services acquired with commission and the feedback received from clients on the disclosures received. The FSA found limited evidence that the dealing commission disclosures provided by the investment managers were scrutinised by pension fund trustees or that trustees were using the information to secure greater value for money in the use of their dealing commission by the investment manager.
The FSA states that it will conduct a further review in Q3 2008.
View Use of dealing commission - results of thematic review, (PDF 63.8KB), 25 January 2008