The Financial Conduct Authority publishes its findings on transition management

Over £165 billion of assets invested in pensions and other large funds are transferred between investment managers, markets and products every year – potentially affecting the returns enjoyed by millions of consumers on their investments – by 13 specialist transition management (TM) providers. Following the Financial Conduct Authority’s (FCA) first review of the sector, firms have today been advised to ensure that their controls, oversight and governance arrangements meet our requirements in all areas.

Clive Adamson, FCA director of supervision, said:

“Transition Management often flies below the radar, but done properly, helps to ensure that investors get the best returns on their assets. By taking a proactive look across the sector, we’ve acted to ensure that standards are high and the consequences of failing to meet our expectations are clear.” 

Our review found that firms broadly met our requirements; however the quality and effectiveness of controls, marketing materials, governance and transparency varied.

The FCA has provided specific feedback where needed, and will continue to monitor the conduct of TM providers. Where firms fall short of our requirements we will not hesitate to take action; the FCA recently fined one TM provider, State Street, £22.9 million for deliberately overcharging clients.

Often, the pension funds or other clients commissioning TM services are unfamiliar with the process. As a result, they may not be aware of potential conflicts of interest, or understand how the way the transaction is being carried out could affect the value of their assets.

Notes for editors

  1. Thematic review: TR14/1 – Transition Management Review

  2. Press release: State Street UK fined £22.9m by Financial Conduct Authority for Transitions Management failings
  3. TM is a service provided to clients to support structural changes to asset portfolios with the intention of managing risk and increasing portfolio returns.
  4. TM services may be required when a client needs a large portfolio of securities to be restructured, or when a client decides to remove or replace asset managers.  For example, a typical pension fund trustee may decide to change the general type of assets (such as equities and fixed income bonds) that the pension fund should be invested in.  Where the change is large and complex, the pension fund trustee may appoint a transition manager to project manage and effect the transition.
  5. A transition manager can charge fees and generate revenue in a number of different ways.  It can charge commissions on equities and futures trades, mark-ups on bonds, and/or it can charge a project management fee (which can either be a fixed fee, or a fee based on a percentage of the overall portfolio).
  6. FCA research shows that the TM providers moved assets worth over £165 billion every year between 2010 and 2012.The largest five firms handled 80% of the market by volume, and processed 68% of the transactions.
  7. Current TM providers: BlackRock, Legal and General, Goldman Sachs, Nomura, Morgan Stanley, Citigroup, State Street, Northern Trust, Bank of New York Mellon, Russell, JP Morgan, Credit Suisse and Convergex.
  8. Our rules require TM providers to properly identify, record, manage and disclose any conflicts of interest that might damage the interest of their clients. Additional rules on best execution and acting in the clients’ best interest also apply.
  9. On 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  10. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  11. Find out more information about the FCA.

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