Sears, who is leading the trade body’s review on ‘cash for access’ practices explained that while people might wish there was a slightly fairer way to grant fund managers access to company executives, the fact of the matter is it’s not always that easy.
While the biggest asset managers will never have a problem gaining a company ear, for mid- and small-sized firms the only way they might get a hearing is for a broker to arrange “corporate access” for a party of them, particularly with overseas firms.
In an exclusive interview with Portfolio Adviser, Sears said the IMA’s review of uses for dealing commission, which covers paying for corporate access and research services provided by brokers, would be done in two stages.
Making sure of compliance
The first stage is in response to the FSA’s ‘Dear CEO Letter’ sent out in November, which asked the biggest asset management firms to confirm they had received the correspondence “Conflicts of interest between asset managers and their customers, mitigating the risks” and had assessed and addressed any conflicts present.
“This was a very substantial piece of work for the firms to do. Most of the areas in the FSA’s paper are not terribly controversial for us but the one area generating a lot of heat has been corporate access and wishing there was greater clarity about what those words covered," he explained.
Sears said the FSA’s approach was to leave it to firms to demonstrate compliance and so the IMA had tried to help its members work out how best to do that. The trade body has received responses to its own paper relating to the matter and in the next few weeks will announce guidance.
Changes to be made
In stage two the IMA will look at whether there is another way of “running the show”, Sears added.
He predicted that some asset management firms who tread on the cautious side of compliance would stop using dealing commission to pay for corporate access altogether and would use money from their own profit and loss accounts as a precautionary measure.
But until the FSA rules that paying brokers out of investors’ cash is explicitly wrong, there is no reason to stop doing it altogether. Sears said the fact fund managers want to get corporate access to firms is precisely why people can charge for providing it and in such instances it is in the interest of clients.
Peter Sleep, portfolio manager at 7IM said the Dear CEO Letter from the FSA was an indication from the regulator that fund managers should be careful with their clients’ cash as brokerage is a drain on clients’ returns.
The FSA said it had received replies from the asset managers, which had to be submitted by 28 February, and would be “going through them and seeing what it made of them”.