There is increasing emphasis being placed on implementation costs in investment management and one of the more significant costs – broking commissions – appears to have come in for scrutiny by institutional investors over the past five years.

Russell Investment Group in the US announced last week that it had passed the $US1 billion mark in clients’ savings from its commission recapture service, which was established in 1969. Significantly, about half of the total savings for institutional clients came in the past five years. Commission recapture, sometimes called directed brokerage, involves using a panel of brokers with whom the consultant, in this case Russell, has negotiated bulk broking rates for its clients. The clients’ funds managers are “directed” to use the consultant’s panel of brokers in order to get the savings. Quinn Zimmerman, global head of commission management at Russell, said: “;Commission recapture savings represent hard dollars that have gone back to our clients’ funds… “;We anticipate commission recapture will become one part of a larger and more comprehensive approach.”; He said that Russell would look to develop new products, services and solutions to diversify clients’ ability to manage transaction costs. Other services currently available include transition management, policy implementation, portable alpha and agency currency execution. In January, Russell transferred John Moore from the US to Sydney in the new position as regional director of implementation strategies. The most recent new implementation strategy adopted by the firm for several of its own funds is to separate the funds manager research effort – deciding which stocks to buy or sell – from the transaction effort – the implementation of those decisions. The Russell program, which has been running for about three years, has demonstrated that it can save 20-30bps by transacting on behalf of the managers – even though the managers will have already traded on behalf of their other clients. Vanguard Investments in Australia uses a similar strategy to replicate one of MLC’s Australian equity funds, with similarly impressive results.

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