Fund houses urged to explain pay policies

UK fund managers have been urged to disclose their pay practices publicly by the industry's trade association, amid calls for a fresh clampdown on pay deals in the sector.

In a private memo to the UK's asset management chiefs, the Investment Association said their secrecy around pay was a "growing source of reputational risk".

It has advised all of its roughly 197 member companies to publish a prominent "client-focused" document that would state their pay policies and how they align the interests of investment teams with their clients.

It comes as public anger over excessive pay and reckless behaviour in the banking industry is threatening to spill over into the investment sector, which has already been censured by the FCA for a lack of clarity over how it charges clients.

M&G Investments was recently criticised for paying bond fund manager Richard Woolnough £17.5m last year in spite of poor relative returns.

In 2013 the industry narrowly avoided a European Union bid to widen a cap on bonuses at 100 per cent of salary, already imposed in the banking sector, to also include retail fund management.

From next year, the EU will force fund managers to invest at least half of their bonuses in units of their funds and defer at least 40 per cent of their bonuses for three years.

In March, the Institute of Directors (IoD) launched a report calling for regulators to investigate the fund industry. The organisation also called for an investigation into pay.

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The recommendation stated: "The Investment Association recommends to members that they publish a single client-focused description of their remuneration policies and how, in practice, their design and application are aligned with the interests of clients."

Simon Walker, IoD director-general, welcomed the initiative and urged investment managers to "listen to their association".

John Kenchington is editor of Investment Adviser

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