Page 1 of 8 Investment Management (Fiduciary Duties) Bill 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 interests of investors, including pension savers in a transparent and accountable way and for connected purposes, I want to start this speech with a simple observation: successful economies cant exist if suppliers take advantage of their customers; if they dont act in their customers best interest.

Competition helps ensure that suppliers do the right thing. But where a service or product is complex, and where the customer cant 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.

Mr Speaker, it comes down to trust.

We trust that the service we require is delivered to the best of the ability of the person, or company, providing the service.

We also trust 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. If you are the agent of the agent of the saver you can lose sight of your ultimate customers best interest. Nowhere is this clearer than in the way the investments of our pension industry are concerned.

This industry is worth over 2 trillion, or 135% the size of the UK economy. With these statistics in mind, and auto-enrolment bringing an additional 11 million more

Page 2 of 8 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 the worlds global companies. In the most part, these people are not wealthy investors. They are people who work in shops and factories, in small businesses and local government.

Are all these companies run on their behalf to make a decent profit to pay a pension and to do so in a socially responsible way?

Does our investment industry, on our behalf, encourage them 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 yes, but in some cases the system fails.

I believe, 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, as 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 with our interests ahead of their own. At the core of every decision they take, should be the savers interest, because it is our money, not theirs for which they have responsibility.

This is the essence of fiduciary duty.

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Financial institutions need to reflect these duties in the way they practice their craft.

That is why fiduciary duties, transparency and accountability are important.

And that is why I have brought this bill forward today. Fiduciary duties should be practiced not only by pension fund trustees, but by all those who have a responsibility for the savings of others.

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 Share Action, just as Section 172 of the Companies Act 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 also 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 over 50%.

Today, the major investment decisions which 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 of pension funds to detail where they invest.

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And votes taken by asset managers on the remuneration of corporate executives should also be in the public domain. These votes represent our interest, and should not be secret.

This bill would also ensure fees paid to pension managers and other intermediaries should be transparent, stating how much and why they are necessary. The OFT has discovered 18 different charges levied on pension funds. Many of them we are simply 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 his concerns about such fees. He said in the FT of January 22nd: 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 went onto quote the kind of fees charged, including, bid-offer spreads to foreign exchange counterparties, payment to custodian banks and fees to pooled funds.

These fees sound opaque, because they are opaque. It is a language meant to be opaque and it is a language behind which 2 trillion is traded.

Are such fees necessary?

How much do they cost the saver?

That is why full disclosure of such fees would be a start.

Page 5 of 8 And because the job of the pension fund manager seems complex and opaque, we need to be able to trust him.

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 or to Trust someone: have the confidence to allow someone to have, use or look after.

And 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 you are ill and require surgery, you put your trust in the surgeon to look after your best interests.

The General Medical Council lists some of the duties of a doctor as:

Be honest and open and act with integrity Never abuse your patients trust in you or the public trust in the profession.

If you want a solicitor to act on your behalf, The Solicitors Code of Conduct states that solicitor must:

Act in the best interest of each client Behave in a way that maintains trust the public places in you and in the provision of legal services.

Even the gasman, who comes to fix your boiler, has a legal requirement to be signed up to the Gas Safety Register and needs to retrain every five years.

Page 6 of 8 And all these examples I have given are people that, from time to time we must place our trust in. But they are all governed by legal requirements. They cannot practice if they are not suitably qualified, they can all be struck off if they are found negligent.

If this applies to a doctor, a solicitor and a gas fitter, it should apply to financial agents and fund managers.

When it comes to your pension investments you have to place your trust in the fund manager for up to 40 years, not just from time to time, and there are no such levels of transparency and accountability.

They have a moral duty to be transparent in their actions and be accountable for them.

Savers have a right to know what fees they are being charged.

Savers have a right to know where their savings are invested.

And every practitioner must be able to put their hand on their heart and say they acted in the best interest of those whose funds they invest; and where market forces encourage them to do otherwise they report it.

Ever more regulation is not the answer. What is needed is a new compact. A new understanding of duty. A rediscovery of fiduciary duties.

That is why I believe, like the doctor who swears under the Hippocratic oath to prevent disease because prevention is better than cure , our fund managers should act responsibly and also remember, like a doctor swearing under that oath:

I 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.

Page 7 of 8 I am not saying those in the industry should swear an oath. What I am saying is the sentiment of those words should be the foundations upon which the industry is built.

And if there is a breach of that duty there should be consequences.

So for example, if there is a miss-selling scandal, maybe any fine levied by the authorities on financial institution should also be levied on the individual perpetrators of the miss-selling. Perhaps then, in that knowledge, miss-selling scandals would be less likely to happen.

Mr Speaker, we say we belong to a civil society, where we have accountable government, informed electors, free press, independent judiciary and freedom within the law: a society that attempts to be there for us all.

I do not believe 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.

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