Unbundle of joy: although it may cause some collateral damage, the Financial Services Authority's campaign to bring transparency and accountability to the industry is a welcome one.

AuthorStewart, Jamie

When CP176, the Financial Services Authority (FSA) consultation paper on bundled commissions, soft commissions and transparency, was published almost a year ago it prompted great discussion. The FSA has now announced that its policy is to transfer responsibility to investing institutions--"the buy side"--and to agree and report on procedures to ensure that its list of essential measures are built into working procedures.

The FSA continues to see the protection of retail investors as paramount. It also wants to ensure that dealing commissions are whittled down to a minimum. The regulator will accept and ratify a solution from the industry reflecting this objective if it is submitted in full by December--otherwise, it will impose a regime of its own design.

It was broadly agreed in the consultation that it's cheeky for fund managers to make their clients pay for the basic tools of their trade. Most respondents saw sense in the argument that, if you are spending your clients' money, it's only right that they should know how much you are spending. They also accepted that the core of such expenditure should cover only trading execution and research.

John Tiner, chief executive of the FSA, recognised the danger that excessive severity would drive capital and business offshore. He said the authority would "give the industry space to develop and trial a solution based on improved disclosure" and assess progress in December. Meanwhile, he sees "some regulatory change as appropriate to set the right framework", suggesting that merely shuffling the papers and reaffirming the Cub Scouts' code of honour will not be enough.

Perhaps a requirement on brokers to display clear menus with dishes, recipes, ingredients, origins and prices as a basic component of their terms and conditions will emerge. This approach has been subject to heated discussion among the global and integrated brokers--the sense and propriety of the objectives clashing with their excesses, accounting quirks, subsidies and counter-competitive stances, which have been in evidence since the Big Bang occurred over 15 years ago.

The FSA intends that "fund managers' use of clients' commissions should be limited to the purchase of trade execution and of investment research". It also stresses the need for disclosure "to separate out the payments for execution from those for research" and for "the emergence of an explicit market price for research".

So bundling is dead. Long live unbundling. If...

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