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Investment Management (Fiduciary Duties)

Volume 575: debated on Wednesday 5 February 2014

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to place a fiduciary duty on those involved in managing an investment to act in the best interest of investors, including pension savers, in a transparent and accountable way; and for connected purposes.

I want to start with a simple observation: successful economies cannot exist if suppliers take advantage of their customers and do not act in their best interest. Competition helps to ensure that suppliers do the right thing, but when a service or product is complex, and when the customer cannot know whether he or she is receiving a good service or buying the right product, the onus has to be on the supplier to act in good faith. It comes down to trust. We trust that the service we require will be delivered to the best of the ability of the person or company providing it. We also trust that the product we purchase works and can do the job. If not, we demand some kind of redress and do not expect to pick up the repair bill. Those who act in a professional manner will guard against bad practice.

One place where trust and professionalism are vital is in the financial and investment services industry, but here is the problem: the agent of the agent of the saver can lose sight of the ultimate customer’s best interest. Nowhere is that clearer than in the investments of our pension industry, which is worth more than £2 trillion, or 135% of the size of the UK economy. With those statistics in mind, and with auto-enrolment bringing an additional 11 million savers into the system—many of them low-paid—the industry has a great responsibility to get it right.

Today, millions of pension savers from all over the world own shares in global companies. For the most part, these people are not wealthy investors; they work in shops and factories, small businesses and local government. Are all these companies run on their behalf to make a decent profit to pay a pension, and in a socially responsible way? Does our investment industry encourage them, on our behalf, to do so and bring them to book when they do not? Does the investment industry encourage the long-term profitable investment that its pensioner clients need? In most cases the answer is yes, but in some cases the system fails.

I believe that those whose task it is to look after the money of millions of pension savers should be under a fiduciary duty. We insist on it for pension trustees, but that obligation should not be lost if the management of the fund is delegated to someone else.

Over the decades, the Labour movement has championed workers rights. Now we must champion the rights of working people as capital holders and investors in the stock market. They are the new capitalists and they are our people, too. We must call on those who manage our funds to do so by putting our interests ahead of their own. At the core of every decision they take should be the savers’ interests, because it is our money, not theirs, for which they have responsibility. That is the essence of fiduciary duty. Financial institutions need to reflect such duties in the way in which they practise their craft. That is why fiduciary duties, transparency and accountability are important, and that is why I wish to bring in this Bill.

For pensioners, sustainable financial performance is what counts. This Bill is intended to emphasise the importance of the long-term result, which is the one that counts for millions of hard-working pension savers in our economy. I agree with ShareAction that, just as section 172 of the Companies Act 2006 requires company directors to have regard for the consequences of any decision in the long term, we should require investors in charge of our pension savings to be similarly enlightened. Those investors should also have regard to the impact of decisions on the financial system and the real economy, and take stock of social and environmental considerations as well as the implications of any investment activities on the beneficiary.

All of this is important because in 2010 only 11.5% of UK shares were owned by individuals. In the 1960s the figure was more than 50%. Today, the major investment decisions that affect companies are taken by asset managers controlling trillions of pounds. That money is our money. We want to know where it is invested and why. This Bill would make it a requirement for pension funds to detail where they invest. Votes taken by asset managers on the remuneration of corporate executives should also be in the public domain. Those votes represent our interest and should not be secret.

The Bill would also ensure that fees paid to pension managers and other intermediaries should be transparent, including an explanation of how much they are and why they are necessary. The Office of Fair Trading has discovered 18 different charges levied on pension funds, many of which we are not even told about. All of this matters because it is unacceptable for fees to eat up as much as 40% of a pension pot.

Lord Lawson has raised concerns about such fees. In the Financial Times on 22 January, he said:

“The costs are massive in this area. Some costs are not revealed at all; some are. Even with the costs that are revealed, there is such a lack of consistency.”

The article quoted the kind of fees charged, including bid-offer spreads to foreign exchange counterparties, payments to custodian banks and fees to pooled funds. These fees sound opaque because they are opaque. It is a language that is meant to be opaque, and behind which £2 trillion is traded. Are such fees necessary? How much do they cost the saver? Full disclosure of such fees would be a start.

The job of pension fund managers seems complex and opaque, so we need to be able to trust them. According to the “Concise Oxford English Dictionary”, trust is defined as a

“firm belief in someone or something. Acceptance of the truth of a statement without evidence or investigation”,

and to trust someone is defined as to

“have the confidence to allow someone to have, use or look after.”

We trust in the industry to look after our savings.

We trust in others all the time, especially when we require them to do something we ourselves cannot do. If we are ill and require surgery, we put our trust in the surgeon to look after our best interests. The General Medical Council lists among the duties of a doctor: to be

“honest and open and act with integrity”,

and never to

“abuse your patients’ trust in you or the public’s trust in the profession.”

If we want a solicitor to act on our behalf, the solicitors’ code of conduct states that solicitors must

“act in the best interests of each client”,


“behave in a way that maintains the trust the public places in you and in the provision of legal services.”

Even the gasman who comes to fix our boiler has a legal requirement to be signed up to the gas safety register, and needs to retrain every five years.

All those examples are of people in whom we must from time to time place our trust, and they are all governed by legal requirements. They cannot practise if they are not suitably qualified, and they can all be struck off if they are found negligent. If that applies to a doctor, a solicitor and a gas fitter, it should apply to financial agents and fund managers. When it comes to our pension investments, we may place our trust in fund managers for 40 years, not just from time to time, and there is no such transparency and accountability.

Fund managers have a moral duty to be transparent in their actions and be accountable for them. Savers have a right to know what fees they will be charged and where their savings will be invested. Every practitioner must be able to put their hand on their heart and say that they acted in the best interest of those whose funds they invest. Where market forces encourage them to do otherwise, they must report it.

Ever more regulation is not the answer. What is needed is a new compact, a new understanding of duty and a rediscovery of fiduciary duties. That is why I believe that, like a doctor who swears under the Hippocratic oath to prevent disease because prevention is better than cure, our fund managers should act responsibly and, like a doctor, swear:

“I will remember that I remain a member of society, with special obligations to all my fellow human beings, those sound of mind and body as well as the infirm.”

I am saying not that those in the industry should swear an oath, but that the sentiment of those words should be the foundations on which the industry is built. If there is a breach of that duty, there should be consequences. For example, if there is a mis-selling scandal, a fine levied by the authorities on financial institutions might also be levied on the individual perpetrators of the mis-selling. Perhaps, in that knowledge, mis-selling scandals would be less likely to happen.

We say that we live in a civil society, in which we have accountable Government, informed electors, a free press, an independent judiciary and freedom within the law—a society that attempts to be there for us all. I do not believe that we can achieve a civil society without a civil economy, in which institutional managers of capital are accountable to their savers and push corporations towards sustainability through responsible management. A civil society and a civil economy are two sides of the same coin. We will achieve neither until we realise that simple truth.

Question put and agreed to.


That Phil Wilson, Nic Dakin, Mr George Howarth, Ian Mearns, Derek Twigg, Sheila Gilmore, Julie Hilling, Mr William Bain, Bridget Phillipson and Debbie Abrahams present the Bill.

Phil Wilson accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 28 February, and to be printed (Bill 170).

On a point of order, Mr Speaker. Just last April, the Deputy Prime Minister said, on the subject of international human rights, that

“stepping back simply for commercial expediency would be walking away from our beliefs.”

Today, he has returned from a commercial delegation to Colombia, which for the 18th year has had a United Nations Commission on Human Rights presence due to continued human rights violations. Has he indicated to you, Mr Speaker, that he intends to make a statement to the House explaining that he is now prepared to walk away from his belief in human rights for commercial expediency?

No, I have had no such notification from the Deputy Prime Minister. On the back of what the hon. Gentleman has said, I have a keen expectation that he will be in his place for the next session of questions to the Deputy Prime Minister. If he bobs up and down with his usual determination, he may just be lucky in catching my eye.