Morneau Sobeco

Morneau Sobeco

March 14, 2008 10:07 ET

Morneau Sobeco: One Out of Two Pension Fund Sponsors Is Not Aware of the Impact of a Better Execution of its Securities Transactions

MONTREAL, QUEBEC--(Marketwire - March 14, 2008) - When buying and selling securities, over half (53%) of pension fund sponsors in Canada are not aware of the impact that adopting best trade execution practices - as recommended by provincial securities commissions - could have on their funds' annual returns. This is according to Morneau Sobeco's most recent 60 Second Survey which gathered data from 95 pension fund sponsors in Canada.

The survey also revealed that out of the pension fund sponsors that are aware of the impact of best execution practices - or what the industry refers to as "best execution" - the majority (32%) estimates that these practices improve their fund's return by more than 50 basis points(1) and maybe even as much as 1% annually. To illustrate the scope of such an effect, this would be equivalent to between a quarter and half of the pension funds' median return, which was 2.1% in 2007, according to Morneau Sobeco's performance universe(2).

"Most of the pension fund sponsors that are aware of this want to know more, and say that they are ready to request a demonstration by their fund managers," affirms Jean Bergeron, Principal in Morneau Sobeco's Asset Management Consulting practice in the Montreal office.

Defining Best Execution

More than two thirds of the pension fund sponsors surveyed define "best execution" as the purchase or sale of securities at the best price, at a fair price, or at a reasonable price, considering the overall services offered by the broker (e.g., execution, research, etc.). Besides the price, "best execution" proposed by Canadian regulators includes the speed, the certainty of execution, and the total cost(3). One out of three pension fund sponsors (34%) could not define "best execution".

The significant gap between the pension funds confirms the lack of awareness and preparation of many Canadian professionals. In 2007, the United States ("Reg NMS") and Europe ("MiFID") adopted, for the first time, rules to incite brokers and institutional managers to adopt best execution practices, and even to proof their benefits by making presentations to investor clients. But in Canada, the provincial regulators did not yet make a decision on the concept paper(3) that was made public and discussed in 2005.

It is not surprising that half of the pension fund sponsors that participated in the survey are not planning any measures to change their execution practices in 2008. However, a third (34%) of these pension fund sponsors includes "best execution" criteria in their procedure for selecting securities brokers, while 27% do not know if this criteria is even considered.

The survey was conducted by Morneau Sobeco during the week that ended on January 25, 2008. In preparation for a Forum on Fiduciary Practices, that was held yesterday in Montreal and featured specialists in best execution practices from across North America that were invited to meet with pension fund and trust representatives, Morneau Sobeco wanted to gauge pension funds' level of preparedness for new trade execution practices that have been developing internationally over the last year.

Morneau Sobeco is the largest Canadian-owned pension and benefits consulting and outsourcing firm, providing services to organizations across Canada and in the United States. With over 1,100 employees in offices in 12 cities across North America, Morneau Sobeco has focused on the integrated design and delivery of pension and benefit plans for over 40 years. Morneau Sobeco's Web-based "60 Second Survey" seeks instant input from pension and benefits plan sponsors on high profile issues.

(1) A basis point is one hundredth of one percent. Fifty basis points
represent half a percent.

(2) Morneau Sobeco's Performance Universe of Pension Managers' Pooled Funds
covers returns of pooled assets managed by more than 60 pension fund

(3) For more information on "best execution", please consult the Canadian
Securities Administrators Concept Paper 23-402 Best Execution and Soft
Dollar Arrangements (February 4, 2005).

Contact Information