On Monday, P&I Daily  ran a story about an initiative we’re behind to promote transparency into benchmark costs. And yesterday, we published a press release (which is available on the CNN Money page, NASDAQ as well as other news sources) that details much behind what we’re doing. There’s also an interview with representatives from BNY Mellon, Northern Trust, and State Street, that also provides a lot of information on this topic.

Some background benchmark costs

Briefly: benchmark costs

About three years ago, we were contacted by a friend and colleague, Joe Nardulli, from Northern Trust, who wanted us to help develop a strategy to promote awareness about the increased costs of benchmark data: simply, it is getting out of hand. One might say that the costs have reached a “tipping point,” and attention to the matter is needed. Why’d Joe call us? Well, he’d be better to explain, but I think he sees us as:

• Involved
• Informed
• Influential
• Independent.

We were honored, and so my colleagues, Patrick Fowler and Chris Spaulding, and I worked with Joe to orchestrate an initial meeting with a few other custodians, plus a handful of asset managers. For a variety of reasons, not much more occurred after that (perhaps because other priorities got in the way), though it remained on our radar. In fact, Patrick and I were chatting about this subject just before we learned of …

NASDAQ’s interest in promoting awareness of benchmark costs

A few months ago we were contacted by Sean Wasserman of NASDAQ to do essentially the same thing. And why did Sean contact us? I suspect for the similar reasons to Joe, but again, he’d be better to answer. Anyway, the result was a meeting with custodians, and next, a panel discussion at an event NASDAQ sponsored, which I’ve blogged about before. Earlier this month, we had the inaugural meeting of the Asset Owners’ Performance Measurement Roundtable in San Diego, where this topic was addressed. Sean was there, along with Frances Barney, CFA (BNY Mellon) and Dax Johnson, CFA (State Street). Sean gave two talks (in addition to the one for the Roundtable, he also addressed the members of the Performance Measurement Forum). What we observed was an epiphany in awareness as to what the costs are for indexes, in general, and custom, in particular. We’re hopeful that more custodians will sign on for the “Custodian Guidelines for Transparency in Benchmark Cost,” which simply state:

• Provide transparency to end-clients on the relative cost of benchmarks (the total cost of using benchmark data may also be taken into account, including index provider licensing fees, and the resources involved to collect and process the related files and data)

• Conduct a free customized benchmark cost analysis upon request from clients that would demonstrate the relative cost of benchmark data options.

Going forward benchmark costs

We are also hopeful that asset owners will gain an appreciation for these costs, look for lower cost options (e.g., what NASDAQ is offering), and be more aware when they make demands of their custodians and asset managers. More is planned to increase awareness and promote transparency (for example, this will be a topic at next year’s PMAR conferences). As always, your thoughts and ideas are welcome.