The Code

The objective of the Code is to promote accountability of fund managers to their clients. The route to accountability is through increased transparency and the Code aims to assist pension fund trustees’ understanding of the charges and costs imposed on the pension fund assets for which they have responsibility. The Code provides pension fund trustees with information on how their investment managers make choices between trading counterparties and trading venues. It also provides detailed information on how commission is spent and what services are met out of commission spend.

The third, latest version, of the Code brings it into compliance with the best execution provisions of the Markets in Financial Instruments Directive (MiFID) and the implementing legislation. MiFID requires that relevant information should be supplied to the clients on the investment manager’s order execution policy. The disclosure information specified in Level 1 of the Code satisfies this requirement.


Amongst other things, the Code is designed to address all explicit costs incurred by client pension funds, including broker commissions, fund management and custody fees, foreign exchange charges, bank charges, taxation (including stamp duty and VAT) and any other costs. Its function is also to explain the management of implicit execution costs.

Disclosure requirements

The Code requires disclosure of investment management costs. In respect of implicit costs which cannot be measured with certainty e.g. transaction costs, a description of the manager’s approach to dealing with these costs is required. There is also a requirement to state the key aspects of calculations so that informed readers can draw their own conclusions as to the usefulness of the information presented.

There is also a requirement for disclosure of certain aspects of the manager’s trading processes. That is, not just the numbers which alone might otherwise be taken out of context.

There are two types of disclosure required by the Code:

Level one

Level one includes internal policies and procedures in respect of the management of costs incurred on behalf of clients and information on the investment manager’s execution policy in line with MiFID.

Manager’s execution policies, procedures and control processes. Selection processes include:

  • Execution venues and methods of trading
  • Broker selection
  • Broker review
  • Variations in rates of commission
  • Dealing efficiency monitoring
  • Purchase of research
  • Access to and allocation of IPOs and underwriting
  • Foreign exchange transactions
  • Commission recapture/directed commissions
  • Conflicts of interest
  • Derivatives
  • Custody services
  • MiFID - the manager’s execution policy

Level two

Level two consists of client-specific information. The key requirement here is for the dis-aggregation of transactions by counterparties and for the disclosure of the amount of commissions generated on those transactions and the services received in exchange for the commissions. It also requires managers to disclose, in terms of percentage, the firm’s pattern of trading and sources and use of commission for all clients in that asset class and to compare that to the specific client. With regard to frequency of reporting, the Code provides for level one disclosure annually and level two disclosure at least every six months. 

Disclosure requirements include:

  • Percentage of portfolio at period end not covered by the Code, e.g. property, private equity or commodities
  • Fund management fees and any other income derived by the manager and associates
  • Custody costs borne directly by the fund and to whom paid, if known by the manager
  • Comparative disclosure of trading volumes, commissions generated and how they have been spent. (Guidance for completion of the disclosure table is set out in the Code in Appendix 4.)
  • Underwriting and sub-underwriting commissions received
  • Stock lending (if any)
  • Taxation
  • Other di minimus costs

The IMA has no legal authority to impose standards or reporting requirements on its members. In some areas the Code does not set out absolute standards, but sets out minimum standards for determining the information needs of trustees and their advisors. These needs will not be the same for every scheme.

The Code has been adopted by the IMA and has been endorsed by the NAPF Investment Council.

Although the Code is not legally binding, the requirements of MiFID are.

From 1 November 2007, the new FSA Rules on dealing and managing and the use of dealing commissions will be set out in Chapter 11 of COBS in the FSA Handbook.