Fund managers trading foreign exchange for their clients are still buying high and selling low, according to a report published in late March by Russell Investments.

"We found that executing entities are still buying at a high and selling at a low," says John Moore, Asia-Pacific executive director of Russell Investment Services in Tokyo and a transition management specialist. The report argues that investors could benefit from employing an agent, such as Russell, to manage FX transactions.

The report -- titled Are your FX fees too high? -- examines data on 40,000 trades worth a total of $19 billion from January 2008 to December 2009. It covers 19 clients and four different base currencies: US dollar, Canadian dollar, sterling and Australian dollar. The study compares the recent data to a timeframe in 2004.

FX trading costs have been below the radar for far too long, says Ian Toner, head of commission management and currency implementation at Russell. "It should be unacceptable to investors and managers when far more FX transactions are executed at prices close to the worst price of the day than at prices close to the best," he adds.

Toner says the unnecessary transaction costs could act as a drag on the long-term return of a portfolio and cost investors as much as 2% of the portfolio's total value over a 40-year period. "This isn't just a rounding error," he adds.

Regulators do not compel companies to disclose revenues from currency trading both directly and indirectly, says Moore. Particularly in Asia, some offshore affiliates do not disclose pertinent revenues -- not only from FX, but from other activities as well.

In the UK, the T-Charter was set up in 2007 to preserve client interests, but in reality it set minimum industry standards, he says. The T-Charter, a voluntary code, outlines agreed best practice in several key areas of transition management, such as remuneration and dealing strategy.

"People hoped it, and the T-Standard in the US, would solve a lot of these hidden revenue issues," says Moore. While it did standardise reporting, he adds, many hidden agendas or conflicts still remain five years later.