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How can ClearGlass help Fiduciary Managers report costs and charges to their clients as per the CMA guidelines?

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A. Fiduciary Structure

Four Layers

1. Client Level
2. Bespkoe Portfolio Level
3. Sub-Fund Level
4. Underlying-Fund Level

1. Client Level

Let’s assume the three clients in this example have given the Fiduciary Manager the following assets to manage:

2. Bespoke Portfolio Level

Depending on the needs of the client, the Fiduciary Manager has constructed three unique and separate portfolios for each of the clients.

3. Sub-Fund/Strategy Level

Each of the portfolios are bucketed into
different strategies. These could be:

These strategies or buckets could be structured Sub-Funds created by the Fiduciary Manager to better manage the investments or virtual buckets.

4. Underlying Fund Level

Each Sub-Fund invests into underlying funds of the same asset class. These funds can be externally or internally managed.

B. Worked Example

Initially we will construct the portfolios for
all three clients

1. Client Level
2. Bespkoe Portfolio Level
3. Sub-Fund Level
4. Underlying-Fund Level

1. Bespoke Portfolio Construction

Client 1 has £50m split across

Item%£
Active Equity25%£12.5m
Corporate Bonds60%£30.0m
Private Equity15%£7.5m

Client 2 has £100m split across

Item%£
Active Equity30%£30.0m
Corporate Bonds40%£40.0m
Private Equity10%£10.0m
Real Estate20%£20.0m

Client 3 has £150m split across

Item%£
Real Estate25%£37.5m
Corporate Bonds75%£112.5m

2. Sub-Fund Construction

Each of the Sub-Funds have got multiple managers (internal and external) underneath them.

Assets that are invested in Strategies (Sub-funds) are further allocated to the following managers as per the below mix:

Active Equity
£42.50m
 Corporate Bonds
£182.50m
 Private Equity
£17.50m
 Real Estate
£57.50m
 
Item%Item%Item%Item%
Ext. Manager 635%Ext. Manager 625%Ext. Manager 840%Ext. Manager 1135%
Ext. Manager 765%Ext. Manager 735%Ext. Manager 95%Ext. Manager 1265%
Int. Manager 1040%Ext. Manager 1055%

Internal Funds

The internal Fiduciary Manager funds follow a manager of manager arrangement i.e. these funds are also further invested with external managers.

E.g. Internal Manager 1
  • Ext. Manager 3  –  40%
  • Ext. Manager 4  –  50% 
  • Ext. Manager 5  –  10%
  • ClearGlass sends the data requests to managers, asking them to complete the CTI Main Account Template for the underlying funds that make up sub-fund 1, 2 and 3, and CTI Private Equity Template for sub-fund 4. In summary, data requests are sent to the following managers:

    External Managers: 1, 2, 6, 7, 8, 9, 10, 11, 12
    Internal Manager 1 and External Manager: 3, 4, 5

    Example Structure of Corporate Bonds

    Looking at the Corporate Bonds Sub-Fund, with knowledge of Internal Manager 1’s manager of manger arrangement, we can summarise the composition of Sub-Fund 2 as below.

    The cost data below is sourced from the completed CTI templates which ClearGlass receives back from the asset managers for all the funds.

    Internal Manager 1

    External Managers

    Corporate Bonds Sub-fund (AUM = £182.5Mn)

    The table below shows the total product cost for the Corporate Bonds Sub-Fund, calculated using a weighted average calculation.

    Other Sub-Funds (Assumption)
    In a similar fashion, we can calculate the total product costs for the other Sub-Funds.
    Assume the below has been calculated.

    Client 1 – Product Costs

    Client 1 – Service Costs (by FM)

    Service cost data would need to be sourced directly from the Fiduciary Manager.

    Client 1 – Product Costs

    The table below shows the product costs as both a percentage and monetary amount.

    Lastly, to report the total cost to Client 1, we would sum the total product and service cost.

    Total cost = Product cost + Service cost
    = 1.31% + 0.60%
    = 1.91%
    As a monetary value, this can be reported as a total cost of £955,500.

    D. Sample Report

    The template displayed below is a suggestion as to how a fiduciary manager could report their costs to their clients. It is designed in line with the CMA Order (part 5) and created to assist the reporting of costs and charges to both:

    Ex-ante

    Potential Pension Scheme Trustee clients

    Ex-post

    Existing Pension Scheme Trustee clients