State Street Global Markets' decision to reimburse a UK pension plan for overcharging for services related to transition management is the result of a double billing of the client, according to a letter sent by the firm to customers.
“Our normal practice is to reflect our compensation as a commission on market trades and/or a management fee," State Street Global Markets said in a letter to clients, dated Oct. 7. "While we may agree to a compensation arrangement that entails both a commission and a management fee, in this instance both a commission and a management fee were applied without that being expressly communicated to the client."
Lucy Davidson, vice president for public relations for parent State Street, in London confirmed the existence of the letter and its contents. State Street has not disclosed the name of the client or size of the reimbursement.
The letter, signed by Nicholas Bonn, went on to say that State Street is conducting a review of a "small number of other transitions in Europe from earlier this year" that involved similar fee pricing to the incident which resulted in reimbursement to the UK pension plan.
Bonn has been given temporary responsibility for transition management at State Street.
The pricing dispute with the UK pension plan has resulted in the departure of two senior ranking executives: Ross McLellan, executive vice president and head of transition management, and Edward Pennings, senior managing director and head of transition management for Europe, the Middle East and Asia.
Transition managers, such as State Street, are hired by pension plans and other plan sponsors to help them move their assets from one fund manager to another. The transition manager is paid by the pension plan or other plan sponsor to ensure that the move goes as smoothly as possible -- aka the costs are minimized for the plan sponsor. The explanation of duration of the transition and an explanation of the fees are typically included in a contract between the plan sponsor and the transition manager.