The transparency times edition #2 june 2016

June 2016

Dedicated to driving up the levels of transparency in financial services, right around the world.

This month’s contributors include: Con Keating

Head of Research, Brighton Rock Group

Nic Round

Managing Director, Treowe Wealth Advisors

Sarah Luheshi

Deputy Director, Pensions Policy Institute

Max Maxwell

Independant Consultant

JB Beckett

UK Rep, APFI and Author of #NewFundOrder

Julia Dreblow

Director, SRI Services

Colin Meech

National Officer, UNISON - Capital Stewardship Programme

Barry Mack

Client Director, Muse Advisory

The official publication of The Transparency Task Force. FREE to members of the Transparency Task Force, membership of which is also FREE

CONTENTS: LAUNCH EDCITION | MAY 2016

THE OFFICIAL PUBLICATION OF

Andy Agathangelou

Founding Chair, The Transparency Task Force “Litigation risk for trustees?”

Page 3

Colin Meech

National Officer, UNISON - Capital Stewardship Programme “Are we reaching a pension cost crisis?”

Page 6

Barry Mack

Client Director, Muse Advisory “Transparency in stewardship - to what aim?”

Page 9

All you need to know about: The Transparency Symposium Page 12

JB Beckett

UK Representative, Association of Professional Fund Investors, and author of #NewFundOrder “Rating the raters: How transparent are fund ratings?”

Page 14

Julia Dreblow (BA Hons, Dip PFS)

Director, SRI Services “Do people really choose to leave their opinions and values at the door when deciding whether to invest?”

Page 38

All you need to know about: The Transparency Task Force Teams Page 42

All you need to know about: Transparency Statements Page 48

Recommended reading Page 52

All you need to know about: The Directory of Pro-Transparency Organisations Page 54

Con Keating

Head of Research, Brighton Rock Group “A visible hand” Page 18

Sarah Luheshi

Deputy Director, Pensions Policy Institute “The role of transparency in value for money” Page 27

Nic Round

Managing Director, Treowe Wealth Advisors “Investors provide 100% of the capital, take 100% of the risk, so what is a fair return?”

Page 30

Max Maxwell

Independant Consultant “Will transparency make things clear?”

Page 34

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COMMENTS FROM THE EDITOR

LITIGATION RISK FOR TRUSTEES?

by Andy Agathangelou, Founding Chair | The Transparency Task Force

Pension scheme trustees have an important and difficult job to do, and the fact that many do that job on a voluntary basis just goes to show how motivated some people are to help ensure that pension schemes are managed properly, which is fantastic. Naturally, an area trustees need to manage well is the scheme’s costs because it is self-evident that if the scheme can unburden itself of wasteful costs the scheme and therefore its members will benefit.

The correct objective for trustees is not cost minimisation but cost optimisation. I learned that point from Paul Trickett, Chair of Railpen Investments when he spoke about cost optimisation at our last Transparency Symposium, in April (and he wrote a cracking article on the subject in the launch edition of the Trans-

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parency Times). His point is that it’s foolish to minimise costs because there will be some costs that represent good value for money and should be maintained or perhaps even increased. I get Paul’s point, completely.

So the task for trustees is to identify and manage out those costs that don’t represent good value for money, the wasteful costs.

But the problem is that it’s terribly difficult for trustees to identify wasteful costs, because trustees (like most consultants) struggle to get the information they need about all the costs being applied to the

scheme. The root cause of the problem is the widespread lack of transparency on costs and charges – explicit and implicit, throughout the entire pensions and investments sector.

They say that ‘You can’t manage what you can’t measure’ so I imagine many trustees are struggling to manage costs properly, whereby I guess they’d be failing in their duty to protect members’ interests.

Of course, I don’t blame trustees for this situation at all - the situation really isn’t their fault. But it is their responsibility.

I’ve probably just upset many trustees by making these points and I’ve agonised about whether to put it so bluntly ‘in print’. On balance, I’ve concluded that I’d rather upset some people and per-

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haps even lose some friends than not say what I truly feel; knowing that as a result of saying what I’ve said some trustees might take action to better-protect the interests of their scheme’s members, and themselves.

It’s not in my nature to deliberately upset anybody so if I have upset anyone by making these points please let me know and I will do my very best to explain myself personally - not to attempt to change their own views but to seek their understanding that my intent is honourable.

Why am I so bothered about this? Well, years ago I had the pleasure of working for Richard Butcher at PTL and he taught me that ‘A pension scheme is like a bag of risks’. I got that, and to my mind the risks trustees face now as a direct result of a lack of transparency are serious, systemic and structural, and they are placing trustees in jeopardy.

Allow me to explain: There have been some interesting developments on these sorts of issues in the USA, where pension schemes are being sued by their members. I’m no legal expert and I’m sure there are many differences between US law and UK law, but I imagine that the principles are the similar, whereby if you can prove that you have been harmed you might be eligible for some kind of compensation - it’s an increasingly litigious world, after all.

Does this not highlight the potential risk of UK trustees

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being sued for failing to manage costs properly and thereby failing to protect their members’ interests?

To me, it is obvious that monies that ought to be invested for the members’ benefit that are instead ‘evaporated away’ through wasteful costs lead to material detriment.

In a DC scheme this manifests as sub-optimal outcomes.

In a DB scheme it manifests as higher deficits that might jeopardies the sustainability of the scheme and take money away from the sponsor that could have been used to pay better benefits elsewhere in the reward mix; and in the extreme it might even jeopardies the viability of the employer.

In a state-funded scheme it means we all pay more tax, or more likely, we get fewer schools built, we wait longer in A&E and we are less likely to find a policeman when we need one.

In the USA, as I understand it, class actions are being brought by attorney Jerome Schlichter, who has handled nationwide class actions on behalf of employees and retirees in large 401(k) plans alleging excessive fees and conflicts of interest that reduce employees’ and retirees’ retirement assets.

Schlichter has obtained more than $300m (£210m) in settlements for employees and retirees, in addition to significant improvements in their 401(k) plans. He was

also the lead attorney in an excessive fees case which resulted in an eight-figure verdict on behalf of employees and retirees in the ABB 401(k) plan. In 2014 and 2015, Schlichter ’s firm obtained the two largest 401(k) excessive fee settlements in history. The first was a settlement for $62m (£43m) against Lockheed Martin on behalf of Lockheed Martin employees, which included significant changes to the Lockheed Martin 401(k) plan. The second was a settlement for $57m (£40m) from Boeing. In 2015, Schlichter won a unanimous 9-0 decision in the U.S. Supreme Court in Tibble v. Edison, the first US Supreme Court case to consider fees in 401(k) plans.

I’m not suggesting for a moment that exactly the same sort of thing will happen in the UK; but what I am suggesting is that something similar might happen.

I’m a fan of an ‘Edward-deBono’s-black-hat-thinking’ style of risk management i.e. ‘imagine the worst and mitigate the risks you see’.

With that mindset I conclude there are some sensible questions that ought to be asked by all trustees.

Questions such as: • What is stopping trustees from getting the information they need to be able to identify and manage all costs (explicit and implicit) properly?

• What should trustees be doing now to mitigate

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the risk of litigation in the future?

• To what extent are any litigation risks covered by their trustee insurance policies?

• What do the underwriters of those policies expect trustees to be doing to mitigate any such risks?

On Monday 13th June, Paul Trickett (Chair, Railpen Investments, who I mentioned earlier and who leads a highly competent, cost-conscious team), Dr. Chris Sier (Director, Finexus and Professor of Practice, Newcastle University Business School, who has been battling on

behalf of consumers on these cost issues for years), Colin Meech (National Officer, UNISON - Capital Stewardship Programme, who has helped to lead impressive breakthroughs in the LGPS) and I, spoke about costs and charges at the Association of Member Nominated Trustees’ Summer Conference.

If you don’t know the AMNT they’re a great organisation, committed to supporting lay Edition #2

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trustees in carrying out their duties, see www.amnt.org (and for the benefit of completeness I will declare that I am very proud to have been involved with the AMNT in its conception and launch).

At the end of their Conference they voted overwhelmingly to look at the costs and charges issues and to co-campaign with the Transparency Task Force. As the Transparency Task Force is dedicated to driving up the levels of transparency in financial services we are completely aligned with the AMNT on this matter, and working together brings many advantages.

We’re not naïve so we know we’ve got an enormous task ahead of us, with negligible resource. We’ll approach that task in a collaborative, collegiate and cooperative manner and to be candid we’re going to need all the help we can get. If all goes to plan we’ll help to bring about the far-reaching reform that is urgently needed. These reforms will help all types of trustees to carry out their duties more effectively, more easily and more safely.

Hopefully we’ll be able to help trustees get what they need to be able to manage costs properly, and we’ve got some good ideas that could bring real, practical benefits to them

and the sector as a whole.

In my view, if you’re in the financial services sector you should get involved with our campaign, regardless of whether you’re a trustee, an actuary, an asset maanager, a pensions manager or whatever.

How can you get involved?

If you’re a member nominee and aren’t yet a member of AMNT make contact with them through www.amnt.org All other types of trustees, and all other types of market participants, please connect with me ASAP and I’ll provide some more detail on what we’re trying to do, why we’re trying to do it and why we feel comfortable asking everybody in the financial services sector to help us.

If I can’t convince you to want to get involved in our campaign within a 3 minute ‘phone call, I don’t deserve your support and you shouldn’t give it.

Please call me on + 44(0) 7501 460308, anytime and let’s see where the conversation leads. Alternatively I can be reached at andy.agathangelou@transparencytaskforce.org …and please circulate this edition of Transparency Times far and wide!

Thank you, very much.

Andy Agathangelou

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ARTICLE: COLIN MEECH

UNISON ASKS: “ARE WE REACHING A

by Colin Meech, National Officer | UNISON - Capital S

MPs are to investigate how many occupational pension schemes are at risk of failing, amid inquiries into the collapse of BHS and the debate over the future of the £15bn British Steel pension fund. The Commons Work and Pensions select committee, which is already investigating the £571m deficit at the BHS scheme, recently said it would launch a wide ranging inquiry into the problem, probably starting in the autumn.

Andy Haldane the Bank of England’s chief economist has recently admitted, “Pensions are impossible to understand and are harming Britons’ efforts to save the right amount of cash for later life”.

There is now a long queue lined up questioning the system, most famously the Prime Minister who complained that people were put off saving by the lack of transparency in a recent Parliamentary Question Time. I never thought we’d see the day that a Conservative Prime Minister would criticise financial services.

What all these high profile figures have in common with UNISON is a frustration with financial services for refusing to simply tell us how much it truly costs to run a pension fund investment portfolio.

the performance outcomes required to keep pensioners out of poverty. High costs and hidden charges and of course a lack of scale are the key factors behind this underperformance.

Many others, including UNISON, have been saying that the lack of transparency for scheme members and trustees was the tip of a very big iceberg of confusion and obscurity with very problematic consequences.

The fact that these high costs are hidden within a very complex and costly investment chain which has presented them at a much lower level than the reality only angers those who have the obligation to understand the process.

We are in the process of seeing the replacement system for Defined Benefit, Defined Contribution, unable to realise

Defined Benefit schemes are also subject to the risks of a funding shortfall - the risks being that the ‘hole’ in the pension fund puts sponsors at risk of liquidation. The choice between a decent pension and saving jobs becomes juxtaposed as is the case with Tata Steel.

Employer sponsors of these schemes suffer as much as the members, as they often put extra cash into the funds yet they do this without the

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The Transparency Times | www.transparencytaskforce.org | June 2016 | Edition #2

A PENSION COST CRISIS”?

Stewardship Programme knowledge of what it actually costs to run the system. No organisation can survive if it does not know what its costs are and no FTSE100 CEO would survive if they couldn’t tell their shareholders how much it costs to run their company.

Everyone in a pension scheme is paying many times more in hidden costs than we they think they are.

A survey in the Financial Times suggested that some “hedge funds” are charging 36 times as much as a simple index tracker for doing much the same. The survey was commissioned and carried out by a former fund manager with a considerable reputation.

The breakdown in trust in the financial services starts and ends in the sector’s refusal to be honest, open and transparent about what they do.

tra.

They cannot give us assurance we are getting value for money – there is no means by which we can do our own independent benchmarking.

There is no purchasing decision that we make without knowing the costs, including an indicator of ongoing costs. Even large capital items like fridges and other white goods offer an indicator or efficiency scale (allowing an assessment of future costs) in their energy ratings. No such indicators exist for pension funds and only a fraction of the costs are ever reported to beneficiaries.

If you can reduce your costs then you reap the value of that saving, and the perfor-

mance uplift, repeatedly.

Costs can be represented in a number of ways, but if they are represented as a % of Assets Under Management (AUM) in the way that performance is represented, it makes the issue clear.

It is likely that your pension fund is costing you well over 2% of AUM each year.

This is an estimate, but one based on hard experience gained measuring in detail the costs of pension funds in several global locations and for several different pension fund types and hundreds of funds, including the UK Local Government Pension Funds

They simply will not tell us the truth about what is going on – we have had that experience in our UNISON staff pension fund.

They won’t tell people how much they are paying – again our own inquiry found this out.

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(LGPS).

Consultants, advisors and fund managers make pensions impossible to understand because they are scared of the consequences of people knowing what is happening to their money. The trustees are scared to reveal to us what the true costs are because they either don’t know or are too embarrassed to ask.

UNISON has been campaigning for Local Government Pension Fund cost transparency, scale and in-house fund management for over six years. This has culminated in the Department for Communities and Local Government deciding to create Common Investment Vehicles no smaller than £25bn of assets under management and requiring back-dated and transparent data on costs going back to 2013; so it can be done but it

takes hard work and dedication.

But there is a workable and transparent solution that can put the scheme member at the heart of the process. This is to use the approach they have in the Netherlands, where over the last four years pension fund trustees have been taking part in a cost collection process. The Dutch government has legislated for transparency and simplicity. Each pension fund must report to its member’s three headline costs, which can be benchmarked against other pension funds. These headings are Administration, Fund Management and Transaction Costs. This simplicity and transparency has restored the trust in the Dutch Pension system.

This is the system being adopted by the Local Government Pension Scheme

Advisory Board and we should be looking into how this can be applied to the UK across all occupational schemes.

The upcoming DWP Select Committee investigation will offer us all a chance to put the case for transparency and other measures that can ensure workers retire in good financial health and not poverty.

UNISON believes that every saver must be given assurance that their pension savings are simple to understand, transparent in costs and performance and are well governed.

Once this happens we can restore the confidence that many citizens have lost in our pension system and help Andy Haldane sleep at night.

Colin Meech is a national officer at UNISON where he has worked for 23 years, he recently began assisting the Shadow Pensions Minister, Angela Rayner. Colin is one of a small number of trade union officials who has knowledge and expertise in pension fund investing. He has worked on the Local Government Pension Scheme changes, scale and cost transparency for the past six years. ‘I consider hidden costs in the investment chain the most immediate challenge for trustees, sponsors and scheme members’” Editor’s comment: Colin’s artticle is spot-on, all the way through Firstly, he is absolutely right to draw attention to the momentous events of recent weeks, where both the Chief Economist of the Bank of England and the Prime Minister have called into question the workings of the finacial services sector.

Secondly, he is absolutely right to stress the adverse impact that a lack of transparency has on the trustworthiness of the sector, which is causing disengagement and a reluctance to save.

Thirdly, he is absolutely right to state that costs and charges are significantly higher than most people realise - this is obvioulsy an enormous problem Fourthly, his commments that the Dutch system represents a viable way forward fro the UK market makes great sense and it is simply fantastic to learn that the LGPS is heading in that direction.

Colin has been battling away on the issue of a lack of transparency on costs and charges in pensions and investments for many years. He is rightly respected for having tremendous knowledge on the subject and the way I see it is that all UK schemes can now benefit from the grreat work being done by Colin, UNISON and the LGPS Advisory Board; and thanks too to Tomas Wijffels, Eric Veldpaus and their Dutch colleagues for leading the way.

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ARTICLE: BARRY MACK

TRANSPARENCY IN STEWARDSHIP TO WHAT AIM?

by Barry Mack, Client Director | Muse Advisory It is important that trustees know why they, and the Transparency Task Force on their behalf, are asking for greater transparency: they are doing so as they have a duty to responsibly plan and manage their resources including the activities they outsource with a view to achieving the best outcome they can from those resources.

What is transparency in stewardship?

Stewardship for trustees is the oversight or management of their pension scheme assets and the members’ benefits entrusted in their care. As such, trustees should prioritise their actions to matters that have or could have a financial impact whether that is in the short, medium or longer term.

In a trustee context therefore, transparency in stewardship is the disclosure of information by providers,

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for example investment managers, that helps the trustee gain an understanding of the operations being carried out on their behalf, and allows trustees to discharge their stewardship effectively.

How does it work?

It is instructive to state the principles behind transparency and to check, therefore, whether these are being observed i.e. is a provider being transparent or not?

These principles are that the disclosed information:

• is relevant to the operations being carried out and provides valuable insight to those operations; • brings clarity on the operations being carried out on the trustees’ behalf; and • is accurate.

The ultimate test is that trustees can genuinely use the information to help their understanding without bias, embellishment or distortion of the known facts. The information would, in that case, be useful to them in how they might engage with that provider in matters of stewardship.

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Why could it go wrong?

If transparency is to work to the advantage of all concerned, it means understanding how the operations of a provider such as an investment manager work for the benefit of the trustees. Trustees need to ask the right questions and be able to challenge answers they don’t understand.

Not only is this something the stewardship workstream of the Transparency Task Force wishes to help with, it should in itself help to improve the operations being undertaken on their behalf. Investment managers will become more accountable to their trustee clients and can more readily see what the competition is doing.

Hopefully this would encourage a drive to best practice and better outcomes rather than a race to full compliance with mediocre results.

It mustn’t, however, lead to unrealistic expectations – simply talking about transparency leads some to expect openness in all operations.

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There are genuine reasons not to disclose information.

For example, a provider that reveals too much might be hampering itself in its decision making.

Some decisions are inherently easier to take behind closed doors. The questions asked are likely to be more pertinent and it avoids the risk of inadvertently giving away a competitive advantage. Disclosure can also have unintended consequences. For example, if media reporting is to be believed, disclosure of executive remuneration (all other things being equal) appears to have increased overall pay rather than reigning it in.

Transparency also means that mistakes are more likely to be revealed and noticed; if one follows the proverb “he who makes no mistake makes nothing” then one needs to be careful as to what one’s reaction to a mistake should be.

There is though, an onus on behalf of the provider to make sure that the information provided is accurate as possible as getting some wrong can cast doubt on the credibility of the rest.

For transparency to bring

benefits, trustees need to be equipped to ask the right questions. Asking the wrong questions could lead to unintended consequences. If too many sets of trustees ask the wrong questions, providers will focus on the wrong things, and provide the wrong, or too much information.

The danger is that too much information brings confusion not transparency.

For example, trustees’ questions should focus on the strategy and policies their investment manager is following in relation to environmental, social and governance concerns rather than particular circumstances of the companies they’re invested in. The latter would run the risk that they were getting into day-to-day investment decision making (which isn’t their remit) and interfere with the investment manager’s operations to the extent that they couldn’t be held wholly accountable for their performance.

It is also important that trustees understand the likely consequences – the costs of those consequences shouldn’t be allowed to out-

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weigh the benefits. The trustee questions must therefore be proportionate to the expected outcome. Whatever the outcome, trustees need to be in a position to explain them succinctly and understandably to their members – the elevator test.

Benefits of transparency So if the Transparency Task Force is to campaign for greater transparency in, for example, ESG matters, terms and conditions or charges, to improve trustee stewardship, then the following principles/ questions also need to be addressed: • Is the information being provided such that actions by trustees on the back of it will strategically and positively impact their pension scheme?

• Does the information provided reveal key aspects of the operation that when addressed make the biggest difference to those operations

for the benefit of their scheme e.g. dealing with conflicts of interest?

• Does the information really reveal true costs and is the cost of obtaining that information commensurate with the benefit it brings?

• Does the information lead to coherent decision making by the trustees and will those decisions be defendable with say 10-year hindsight?

• Are the trustees structured in a way that enables them or their support function to collate the information and act upon it?

• Does the information demonstrate accountability or obfuscation?

• Does acting upon the information really influence the provider in the actions being carried out for the benefit of their pension scheme?

To what aim?

So, in the quest for transparency, let us be clear

about what we’re trying to achieve, why we’re trying to achieve it and what benefits it will bring. The aim must surely be to improve overall financial outcomes for trustees’ pension schemes.

Let us not lose sight of this as we get into the detail.

Editor’s Comment: Barry’s wealth of experience in pension scheme governance and stewardship is making him a tremendously effective Leader of the TTF’s Stewardship Team.

They have two very worthwhile projects underway - the development of a Questions Bank for trustees and the development of a Model Mandate.

Get in touch if you’d like to know more.

Barry joined Muse Advisory in April 2016 with over 30 years’ experience in the pension industry incorporating both DB and DC and covering both the private and public sectors.

Prior to joining Muse, Barry was a Partner and Head of Governance at Hymans Robertson LLP where he was responsible for developing, promoting and delivering the firm’s governance services, including firm-wide thought leadership. Client projects included major governance related, organisational and operational effectiveness consulting projects at both strategic and delivery levels. In particular, his actuarial background has enabled him to help clients to meet their funding, investment and risk management responsibilities through greater governance effectiveness.

Barry was also the independent governance and administration adviser to one of the county council’s LGPS funds, as well as chairing Hymans Robertson’s DC Governance Committee for its own pension plan.

Barry’s earlier career was developed at Mercer where upon qualifying as an actuary he moved into the governance and administration consulting arena. Whilst at Mercer he took on trustee outsourced pensions management roles and subsequently led Mercer’s governance and administration consulting practice before branching out into Pan-European pensions. Barry was at one time a member-nominated trustee to Mercer’s own pension plan.

Barry has spoken at conferences at both a National and European level and has published a number of magazine articles on governance and related operational issues on DB and DC in both the private and public sectors and continues to be quoted on the subject in the trade press.

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ALL YOU NEED TO KNOW ABOUT:

What’s it for?

Our Transparency Symposiums have a purpose - to galvanise support for the idea that there ought to be higher levels of transparency in financial services, right around the world.

They are uniquely inclusive opportunities to consider and debate the keys issues, contemplate the thought leadership available and build consensus on the best way forward for the financial services industry and its clients, as a whole.

Delegates will enjoy an environment that is conducive to candid and intelligent debate, where ideas can be exchanged in a constructive and civilised manner thereby encouraging co-operation, collaboration and collegiality, for the benefit of all.

When is it?

- Wednesday 22nd June - 8:30 for a 9:00 start, ending at 16:45

How much are the tickets?

The target ticket price is £150 which includes logo sponsorship, but if that is genuinely beyond your budget and you are keen to promote greater transparency in financial services you may pay a reduced contribution for your place, as low as just £1 if absolutely necessary - so please pay as much as your budget allows, up to £150.

This rather unusual pricing policy has been developed because we do not want cost to prevent, for example, Member-Nominated Trustees from being able to attend, and that’s very important to us because the overall purpose of the event is to galvanise support for the idea that there ought to be higher levels of transparency in financial services, right around the world.

So if you’re on our wavelength be sure to attend our event!

What’s the Transparency Trophy all about?

A Transparency Trophy is awarded at each Transparency Symposium. Contenders are individuals and organisations that can evidence they “believe in transparency”, and want to showcase their pro-transparency credentials.

Previous winners are The Dutch Association of Pension Funds and ShareAction.

As well as being a bit of fun, it’s a great way for pro-transparency organisations to get the recognition they deserve and to help lead the way for others to follow.

Furthermore, there is no cost to compete, and better still submissions are limited to just one side of A4! - so what are you waiting for?

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What about a Transparency Symposium outside the UK? We’re working on that, so if you think a Transparency Sympoisium would help the cause for greater transparency in financial services in your country get in touch and we’ll work with you to make that happen.

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Who’s speaking?

Who’ll be attending?

We have another cracking line-up for you:

Based on our three previous Transparency Symposiums we’re expecting a crowd of 50 to 100 people from organisations such as:

The Rt Hon Sir Vince Cable, Former Secretary of State for Business Innov. and Skills Alexander Adamou, Fellow, London Mathematical Laboratory Jonathan Lipkin, Director, Public Policy at The Investment Association Jackie Beard, Director, Manager Research Services EMEA at Morningstar Alexander Schindler, President, European Fund and Asset Management Association JB Beckett, Association of Professional Fund Investors, Author #newfundorder Tony Filbin, Group Chairman, Capital Cranfield Independent Trustees Jamie Jenkins, Head of Pensions Strategy, Standard Life Robin Powell, Editor, The Evidence-Based Investor Colin Meech, National Officer, UNISON - Capital Stewardship Programme Tony Filbin, Group Chairman, Capital Cranfield Independant Pension Trustees Angela Rayner MP, Shadow Minister for Pensions Tom Tugendhat MBE MP, Member of Parliament for Tonbridge, Edenbridge ad Malling

Regulators - including the Financial Conduct Authority and The Pensions Regulator, The Department for Work and Pensions, Asset Owners including lay and professional trustees, Asset Managers, Representatives from Professional Associations and Trade Bodies including The Investment Association - CFA Society UK - AMNT - PLSA - The Wealth Management Association - The Pensions Policy Institute, Standards Bodies, Environmentalists, Consultancies, Advisory Firms, Transition Managers, Parliament, Governance Consultancies, Lawyers - pensions and investment, Pension Cost Analysis Consultants, Investment Chairs, Pension Providers, Data Consultancies, Academics, Platform Consultancies, Benchmarking Organisations, Pensions and Investment Research Organisations, Governance Organisations, Employee Benefit Consutants, Independent Financial Advisors, Campaigning Groups such as The United Nations Global Compact - ShareAction - Tomorrow’s Company - UKSIF - The Institute for Global Financial Integrity, Custodian Banks, Trade Unions, Fiduciary Managers, Pension Scheme Selection Consultancies, Boutique Investment Houses, Wealth Managers, Banks, Financial Services PR companies and Asset Servicing Companies.

So, apart from anything else our Transparency Symposiums are outstanding networking opportunities.

Where is it?

UNISON Centre,

130 Euston Road, London NW1 2AY

Enquiries: andy.agathangelou@transparencytaskforce.org

Telephone: +44 (0) 207 55 88 77 3 Mobile: +44 (0) 7501 46 03 08

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What happens afterwards?

We go to the pub, of course!

So how do I book my place?

Great question!

Just click here!

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ARTICLE: JB BECKETT

RATING THE RATERS: HOW TRANSPARENT ARE FUND RATI

by JB Beckett, UK Representative | Association of Pro and author, #New Fund Order

As the industry re-evaluates business models in the face of regulation, technologies and changing client needs then the industry needs to listen more actively to professional fund buyers on the frontline, on areas such as due diligence, good governance, fair competition, active fund management, asset concentration and value for money.

How much do fund buyers rely on fund ratings?

If being flippant I would say ‘horses for courses!’, some a lot, some less and some not at all. I have studied fund ratings closely for well over a decade. The fund rating and consulting landscape has changed in recent years, with established agencies exiting to be replaced by new firms, gradual proliferation and blurring of lines between agencies (like Morningstar), multi-managers (like Russells) and DC consultants (like Mercer).

I see a range of reliance among fund buyers, from those wholly dependent on rating advocacy, to agencies being gatekeepers and influencing platform buy lists, growing presence within fund databases and pinks, a support tool to validate a proprietary view, right through to being utterly ignored.

Group-think or Synergy?

London fund analysis may

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have grown significantly as a profession but it remains very much a small, closely connected, ‘village’.

Analysts rotate between agencies, carrying their fund biases from one to the next. Consequently star manager culture pervades many a rating agency on both anecdotal and empirical evidence.

mance and extrapolation of short cycle data.

Indeed, Quant-based ratings have shown poor performance persistency, as has been shown in contemporary academic studies such as:

I am not sure if the problem rests wholly with agencies or buyers (probably both) but it has been embedded for a long time. Partly the problem of overlap is when ratings initially rely too heavily on similar statistical theory, which drive screens to focus on standardised data periods and distributions. The risk is one of framing and anchoring ratings around tail perfor-

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INGS?

ofessional

Fund Investors,

P. Hereil, 2010, J. Espinoza, WSJ, Sept 2014 and A. Swoongsang, 2011. Most studies picked on Morningstar as the biggest target, the dominant US/global provider of fund data and ratings.

The divinity of the CFA (nee AIMR) has also had a huge impact through proliferation of Global Investment Performance Standards (‘GIPS’) and CFA charter-holders within Morningstar and other agencies.

Data versus Dogma!

Our regulated and statistical obsession with 3 year data has dogged our industry for nearly two decades. Giving rise to the 3 year ‘incubation period’ for a new rating becomes a stooge for ‘soft launched’ funds.

Consequently asset managers have become very attune to playing agencies like a fine concerto and there is no common accord between agencies or obvious inflection by agency leaders on how to deal with ‘soft-launches’.

On the whole, rating agencies appear well adept to identifying dysfunctions within fund managers but less so at looking at their own model.

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Also few agencies (like most professional fund buyers) have accurately identified a governance or risk issue before it occurs.

Fund ratings are therefore in some ways quite superficial, focussed on the median outcome with operational due diligence often neglected. An area ratings agencies like Defaqto and Fitch have been looking at.

Think Madoff, think Arch Cru blow-ups and a torrent of smaller regulatory fines for pre-trade compliance errors, stock concentrations, front-running and client asset breaches.

Why the Business Model is as important as the Rating Process!

The line between ‘pay to play’ (the fund house pays for a fund rating to be undertaken) and marketing licenses (the fund manager pays to display a fund rating) is a grey one. In a marketing license arrangement the fund managers are invoiced by the agencies for ‘marketing rights’ to use the fund ratings in their literature, website and fact sheets.

In some cases there may be sound segregation of research and commerciality

but it cannot be assumed.

With all this in mind, not all agencies (or DC consultants) are therefore equal.

The challenges for agencies continue, a sense of remoteness to the customer and performance of the funds they recommend, their reports splashed with MIFID, legal and other regulatory caveats.

Digitalisation.

The information advantage of agencies will also diminish due to digitalisation and ratings will need to evolve from the current abundance of ‘what?’ to a more intelligent ‘so what?’ as they trade closer and closer to the ‘advice’ border. Agencies that can get closer to the end customer can only benefit from digitalisation and regulatory change.

Fundhouse.co.uk is a good example. The onus upon agencies is to ensure ratings are as reliable on the day of the trade as they were on the day the rating first went live. All data used should be time-stamped and ratings monitored on an ongoing basis, with performance shown since the rating was first

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applied.

ness.

True transparency of historical ratings and survivorship bias is not something most agencies are prepared to publish but I would encourage them to do exactly so.

Distributors.

Most agencies are usually reactive in terms of new ratings and sector rotational basis for existing. Agencies typically refresh a rating only once a year or in response to a manager change.

Often agencies will put a fund ‘Under Review’ to buy themselves a little time and to caution buyers. My observation is that such periods can easily last 6 months or more.

Ultimately many agencies become laden under the weight of their own fund universe coverage, which impacts responsiveness and nimble-

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In contrast to rating agencies and innovative fintechs that typically have some transparency in terms of business model and methodology; many life platforms, distributors and insurers on the other hand actually say very little about their fund governance, manager selection and methodology.

Much will have been agreed at group level and relates as much to the margin and rebate on offer from fund houses than the merits of underlying funds. Open architecture platforms and supermarkets need only ensure funds are regulated.

There are exceptions of course, some platforms

publish the minutes of their investment committee, some use agencies and we are seeing more independent governance committees cropping-up (albeit a vast cast of seniors sitting around a table does not in itself guarantee good fund outcomes). Meanwhile Big distributors focus on fairly blunt median outcomes and glacially slow to respond to changes.

Building Transparency.

If some but not all agencies have merit, then buyers need to conduct their own due diligence when choosing.

Firstly, understand the business model belying the rating.

Does the agency employ the pay to play model, marketing fees or subscription service?

Next, what size is the recommended list, is it quant, qual,

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does it rely on humint or digital models, how many analysts are there relative to fund coverage, what period have they covered the fund, their relevant experience of the manager/sector, the frequency of reviews, rating turnover, rating format: face to face, by phone or questionnaire? If you don’t know the answers, then how can you interpret the quality of a recommended fund belying the rating?

Again Fintech may offer a solution. Uploading analyst views into a common platform (like Bloomberg, Ikon) as with equity sell side research would allow fund buyers to track fund analyst performance.

Indeed, new start-ups like SharingAlpha.com show the way and should be applauded. Another may be customer advisory boards or independ-

ent governance committees, which need to take an interest at the fund level not just the headline stats.

Above all the methodology, business model and objectivity of a fund, rating needs to be transparent.

Affectionately known as ‘JB’, Jon Beckett is a veteran fund selector and strategist with 20 years’ industry experience. JB is a thought leader in the fields of fund strategy, research and governance. Author of the controversial book ‘#NEWFUNDORDER’. He is a gatekeeper for one of the UK’s largest insurance platforms, non executive, columnist and global presenter on a variety of fund management and macro issues.

JB’s senior portfolio includes: consulting Chief Investment Officer to Gemini Investment Management board, UK Research Lead for the Association of Professional Fund Investors, Chartered Member, Author and Senior Reviewer for the Chartered Institute for Securities and Investments, and member of the Z/Yen Long Finance think-tank.

Editor’s Comment: Very few of us understand the complex world of fund ratings as well as JB does and he is absolutley right to shine a light on the importance of tarnsparency within that highly influencial part of the market.

We’d welcome further analysis and comment from other experts on the topic please - is this an (another) area of the market that is conflicted?

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ARTICLE: CON KEATING

A VISIBLE HAND

by Con Keating, Head of Research | Brighton Rock Gr

This article sets out the issues I consider important and suggests approaches that may prove fruitful for their analysis. It makes no claims as to completeness or significance in a broader context, and it is most definitely unfinished work in progress.

Why did I get involved with the Transparency Task Force?

Popular though disclosure and transparency are as remedies to the perceived troubles of the pensions world, my motivation was to understand where, when and how transparency works; indeed, what the limits to transparency are in a broader remit.

There can be no denial that in many circumstances transparency has worked well, but equally there are also situations, though fewer, where it has failed miserably.

Some Historic Context Although the concepts of disclosure and transparency have precursors at least

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as far back as the writings of Mill, it is usual to date the modern approach to Louis Brandeis’s 1913 Harper’s Weekly article: “What publicity can do”, which contains the immortal: “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

This was written twenty-three years after his, arguably far more important, 1890 Harvard Law Review paper: “The Right to Privacy”. The inherent tension between privacy and transparency will later serve as a motivation for targeted rather than universal transparency and disclosure.

From his various writings it

appears that Brandeis saw transparency working in a variety of ways.

First, that publicity would result in lower fees for investment bankers on the new public offerings of securities, which were a prominent feature of the US market at that time; this appears to be similar in nature to the current widely-held belief that fund management disclosure and transparency will result in lower costs to investors.

Second, that full disclosure would allow investors to judge better the value of a security, and in this way improve the efficiency of the market.

However, he had further concerns: “The law should not undertake … to fix bankers’

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roup profits. And it should not seek to prevent investors from making bad bargains.”

Current Thinking The modern approach is well-expounded in Fung, Graham and Weil’s 2005 ‘Full Disclosure: The Perils and Promise of Transparency.’: “Instead of aiming to generally improve public deliberation and officials’ accountability, targeted transparency aims to reduce specific risks or performance problems through selective disclosure by corporations and other organizations. The ingeniousness of targeted transparency lies in its mobilization of individual choice, market forces, and participatory democracy through relatively light-handed government action.”

I shall return to accountability and factual information later and rest content here with simply noting that one possible definition of neo-liberalism is: “the elevation of market-based principles and techniques of evaluation to the level of state endorsed norms.” In several of their working papers Fung et al suggest that transparency systems are “government mandates that require corporations and other organisations to provide…” while also subsequently recognising that transparency may develop independently as part of a competitive commercial strategy; this will be discussed more fully later in the context of trustworthiness.

If regulatory intervention were a necessary condition

for transparency to become effective, this would carry implications for the operations of the Transparency Task Force.

Data, Information and Knowledge It is as well to begin tackling these where, when and how questions by first considering some of the key aspects in elementary terms, starting with the relation between data, information and knowledge.

In an uncertain world, we use models to parse data into information and noise, and the model chosen will determine the information that can

Fung et al. describe targeted transparency as emerging from right-toknow policies: “While rightto-know policies required simply that existing government reports and other documents be made available to the public, targeted transparency required that government agencies, companies, and other private-sector organisations collect, standardise and release factual information to inform public choices.”

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be extracted. Different models will usually deliver different information.

Factual information’ requires a commonly understood model. In this world, knowledge is cognitively processed information, a learning process which requires effort.

There is a related issue with standards. The adoption of a standard is merely a reflection of a particular ‘reality’; standards are not inherently neutral. Many firms and institutions spend much time and effort to bend standards to suit their particular ‘realities’.

For example, the investor oriented “decision usefulness” of the current international accounting standards excludes and omits many other stakeholder reality viewpoints, and even fails to capture the heterogeneity of the investment community. Different stakeholders have different ‘realities’.

There is another area of concern which arises over disputes and legal proceedings. It is well known that cases may be chosen or cherry-picked by industry

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participants to be publicly litigated in the expectation of ‘nudging’ the interpretation of law in their favour. This is a form of ‘bending’. Less favourable cases may be settled on the ‘steps of the court’ and these settlements subjected to non-disclosure clauses. Indeed, in some cases even the existence of the settlement is to be held confidential.

This suppression is clearly not in the public interest, particularly in light of the remarkably small number of cases that reach the courts.

The Economics of Information Information and knowledge are rather strange economic goods. For example, we cannot know the value of a piece of information until we are in possession of it, which is a serious obstacle to setting a price for it and more generally, to creating a market in information. It may be very costly to produce, as is immediately evident with big physics and advanced pharma research, but can rapidly lose value on broad transmission or reproduction; a process that is usually trivially cheap in the modern technological era. The research effort may be highly uncertain, making it difficult to finance other than with retained equity.

Though information, at the most basic level, is indivisible, it may be shared without loss of use. Indeed, information and knowledge are not consumed in use – they don’t wear down or run out with use. In the economic jargon, information and knowledge are not ‘exhaustible’. A distinction needs to be made here. There is a loss to the producer of a piece of information arising from its broadspread dissemination and this is a market or exchange value; the user value, of course, is unaffected. The problem for the producer is maintaining control of the exchange value for sufficient time to recapture their investment made. The economic jargon here is of ‘appropriability’. Over history, many techniques to achieve this have been used – from secrecy to patents and licenses and much more. One common method, the strategic alliance with other firms and more recently government agencies, is of particular interest as it extends the collaborative co-operation model, where trust is an essential component.

Appropriability is the principal issue with unconditional transparency, and quite distinct from concerns with client confidentiality.

This would now be a very strange market, of reluctant buyers and unwilling sellers. It presents a real challenge for those fundamentalists who believe that unfettered, free, competitive markets are unconditionally the optimal form of economic organisation.

The reality is that economic

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systems that rely entirely on the market to organise the generation and dissemination of information are bound to undersupply it.

As information and knowledge accumulate, these effects will grow more important with the passage of time. It is more than simple incremental accumulation that matters here; in many instances it is a case of “standing on the shoulders of giants”.

These are markets where, if they are to develop and thrive, regulation is necessary both to grant rights to the producers of information and also to limit the possibility of exploitation by producers at the expense of consumers.

The financial services industry uses tacit knowledge, the accumulated fruits of learning by doing, in conjunction with secrecy, extensively as it can serve as a control mechanism, or barrier to entry.

The capture of tacit knowledge is the rationale behind many of the ‘team transfers’ seen between investment banks and to a lesser extent,

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fund managers. Though the possession of important intellectual property is frequently claimed by fund managers, the reality is that this is usually limited to tacit knowledge.

The Case for Transparency While we are accustomed to referring to these issues as a ‘free-riding’ problem, the fact is that we have certainly known since the 1950s and the work of Robert Solow that the majority of economic growth and development comes not from capital investment but from copying and mimicry of innovations and new ideas first introduced elsewhere.

The huge social benefits from wide dissemination usually by far exceeds the research and development investment costs of the initial discoverer or innovator, but is entirely dependent upon that stream continuing. This is the overarching case for transparency, but it needs to be equitably organised.

The letters of Thomas Jefferson, who was also a founder and examiner of the US Patent Office, discuss these issues extensively.

They are also central to the commercial dimension of our modern technology enabled and connected world.

Asymmetries

Disclosure and transparency are widely promoted as the remedy for the asymmetry of information that exists across the investment marketplace.

Many argue that disclosure by investee companies is warranted as this will level the playing field between retail and professional investors; this might be true if the disparity were based solely upon the collection of data, but if as is argued by professional investors, and seems plausible, their advantage arises from their tacit knowledge and ability to analyse and process the data gathered, further disclosure will exacerbate imbalances.

However, it is clear that in most circumstances there are material asymmetries of information between the asset manager and the investor. These asymmetries gain or lose in significance depending upon the precise form of the relationship between the two parties.

Though the Investment Association describes its members as occupying an agency role, this can be a misleading description in many cases.

Data Ownership However, in the case of a segregated mandate, the relation is well described as principal and agent. In this circumstance, it is clear that the data concerning the monies managed are the property of the investor, but as this information is not rivalrous, this does not preclude the fund manager from using it. In fact, it could not be excluded

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from the fund manager’s tacit knowledge base.

In the case of pooled products, the investor simply has a claim on the fund vehicle, not ownership of the assets, and the principal and agent relationship is between the fund and the fund manager – here the data are the property of the fund.

But it is not at all obvious why any fund should seek to deny access to this data and information to its ultimate investors given its economic properties. Moreover, the ‘look-through’ requirements of Solvency II for insurers, which require disclosure of the assets held, suggest that withholding this information is regarded as inappropriate in European regulatory circles.

It appears that many fund managers are preoccupied with the security of their tacit knowledge base, and mistakenly seek to withhold data from their client investors.

Equally misguided is the inclusion of confidentiality clauses in management mandate terms and conditions that restrict the uses of data and information by investors.

Asset Management Terms and Conditions The legal form of this agency arrangement is important.

Under a true fiduciary arrangement, the fund manager has onerous duties accompanied by strong powers. In

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fact, disclosure is a necessary element of the concept of equitable accountability underpinning fiduciary duty.

The remedies available vary with the legal form of the relationship: under contract the situation may be described as execution of promises made or pay for any loss, while fiduciary requires accountability or due performance.

In fact, the fiduciary arrangement is best seen as an attempt to encourage good process in the fund manager.

Unfortunately, most investment management agreements now contract around fiduciary liabilities and remedies using contract form; a negotiated, agreed assembly of services and performances defined as verifiable outcomes.

How these practices can be reconciled with or even considered compatible with the Investment Association’s first principle to: “always put the customer’s interest first and ahead of their own” is more than a

rhetorical question, and of course, one which cost Daniel Godfrey his position as CEO of the Investment Association.

It is clear that the segregated mandate is sold on the basis of trust but documented on the basis of a restricted contract, which can exploit information asymmetries.

One of the issues is that in writing such contracts, trustees cannot know what they don’t know, and completeness becomes an issue. The non-disclosure of dispute settlements is one obvious problem here.

It is also as well to be aware of the Dunning Kruger effect, which in Confucian terms may be stated as “Real knowledge is to know the extent of one’s ignorance” or as put

by Shakespeare in ‘As you like it’: “The Foole doth thinke he is wise, but the wiseman knowes himselfe to be a Foole”.

It is evident that there is an element of wishful thinking

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on the part of trustees here; they tend to view the contract as a set of minimums which may be exceeded on the basis of the trust they have placed in the fund manager, and believed reciprocal, while for the fund manager this contract defines all that they need do, the totality of the arrangement, and placing the client interest ahead of their own does not appear among those obligations.

This wishful thinking is actively encouraged by asset management marketing.

Transparency Some further explanations are necessary if we are to avoid running ahead of ourselves. By transparency I mean public disclosure by fund managers of standardised, comparable and disaggregated information regarding specific products or practices, to further a defined public purpose.

The standard in this case being chosen to reflect the desired public purpose.

Central to the public purpose is restoration of trust and confidence.

As the Bank of England’s Andy Haldane recently said: “Evidence has emerged, both micro and macro, to suggest trust may play a crucial role in value creation. At the micro level, there is now ample evidence the degree of trust or social capital within a company contributes positively to its value creation capacity. At the macro level, there is now a strong body of evidence, looking across a large range of countries and over long periods of time, that high levels of trust and co-operation are associated with higher economic growth.”

The mechanism by which transparency is expected to operate is that investors perceive and understand disclosed information and respond by choosing safer, better quality or more appropriate portfolio management services. In turn, the fund managers perceive and understand investors changed choices and improve their products and practices, which reduces risks or improves services.

Indeed, there is some evidence, that fund managers will pre-emptively lower charges on the introduction of disclosure regimes.

Trust It is clear that disclosure may operate on trust through a number of different channels.

Let us first be absolutely

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clear, the ambition of transparency should not be ever increasing levels of trust nor should it be blind trust. Trust should be placed in a discerning and discriminating manner and is merited by those who can demonstrate their trustworthiness. Uncertainty is a prerequisite for trust to be necessary. Reducing uncertainty by disclosure lowers the need for trust; it brings the situation closer to the deterministic. Trust entails informed judgement – what ought to be done, what was done and its sufficiency; it involves assessment of the to-be-trusted’s willingness and motivation to perform. Proxies and KPIs are no substitute for such expert judgement.

The problem with proxies is that they may not capture what really matters, and can lead to management abuse – shorten the waiting times but not worry about curing the patient. I will revert to motivation later.

The academic literature on trust divides the topic into generalised and bilateral (or reciprocating) trust; generalised trust is closely related to the concept of social capital and the propensity to trust within a population. This is what the often-cited surveys of attitudes to trust are measuring. It may be considered lacking in an important attribute for discerning application and targeted transparency, the specific competence for which we place trust in an agent. In other words, we trust someone to do something in particular – we trust the doctor to prescribe a suitable medicine but not to

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quate standards.

Transparency can only deliver when the material disclosed is intelligible, relevant, accurate and honest, and these attributes cannot simply be assumed.

fix our car.

The demonstration of ability or competence is an important element in the perceived trustworthiness of the to-be-trusted. It is also problematic for fund managers. While their PowerPoints all seem to show top quartile performance, academic analysis is far less kind. A large part of the efforts of the Transparency Task Force is rightly focussed on the presentation of investment performance, including costs and charges.

Marketing and Puffery The tacit information held by a fund manager forms an important part of their intangible capital, their reputations and, of course, their sales pitches and marketing.

It should come as no surprise that all sorts of status-and-authority-promoting irrelevancies find their way into marketing materials. Take the “We are highly regulated business” line; there is never any mention that companies

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should take absolutely no comfort from this as, unlike individuals, they cannot sue for a breach of regulation. “We are a signatory to the Stewardship Code” and “We are a signatory to the UN Principles for Responsible Investment” are further examples of this puffery. It is notable that the United Nations term in the title has persisted far longer in asset management marketing documents that it did with the PRI Association itself.

The problem with such claims is that they lack substance – the fund manager is not accountable for their performance, either to investors or external authorities, such as the courts. For warranted placement of trust, there are distinct obligations on the fund manager; it is necessary both to do and to account for having done.

Disclosure alone is not sufficient – it needs audience-specific communication, which is key to its intelligibility and evaluation. It is obvious that transparency may fail when the data or information circulated fails to conform to ade-

Audit and verification must be possible. There are issues to be considered of proportionality for the fund manager and, for the investor, of its mirror of information overload and channel congestion, that are well-known in the telecommunications industry.

Abuses of Transparency Transparency may be abused in a range of ways. The management of the proxy rather than the true purpose or objective was mentioned earlier, but there are also the cases where discussions take place and decisions are reached outside of the meeting and its recorded minutes, or where the objective of disclosure by the fund manager is simply the transfer or avoidance of liability.

John Turner of the US Pension Policy Centre and Sally Shen of Netspar have documented cases where the information disclosed is true but incomplete, and in consequence misleading.

There is an assumption to transparency that disclosure should not be dishonest or deceptive. There are also areas of concern with practices that breach the standards and norms of the caveat emptor marketplace; transactions that are

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undertaken on the expectation that they will pass undetected or unpunished or both, even though they breach rules or even the law. We may stipulate ‘thou shalt not kill’, but murders still happen.

The publication of executive salaries did not have the desired effect of slowing their rate of inflation, quite the opposite in fact. Examination of these difficult cases is informative, and in this case, motivation drives the outcome. Obviously, motivation matters greatly for sound evaluation of trustworthiness, and the form is important. Intrinsic motivation, as is associated with professions such as medicine or the clergy, is often described as vocational, altruistic or other-regarding.

It is far more powerful than extrinsic motivation, such as bonuses or similar rewards; these are the standard remedies of modern economics.

However, it should be realised that as the salience of the extrinsic reward rises, so it will displace the intrinsic mo-

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tivation. It appears that some of these responses are very deep-seated. Primatologists studying apes conducted an experiment in which an ape was rewarded with cucumber slices for performing a task; it performed industriously. They then introduced another ape visible to the first, performing the same task but rewarded this one with grapes. As grapes seem to be preferred over cucumber slices, the first ape became very upset and downed tools.

In a real world case, when fines were introduced to en-

courage parents to arrive on time to collect their schoolchildren, they arrived later as the framework had moved from the intrinsic to the extrinsic.

These relations are challenging for conventional economics; why should the supply of blood ‘donations’ decline on the introduction of a small reward? In light of this it is worth listing the other effects that may be observed.

If the work being rewarded is of a rote, repetitive and boring nature, for example: the production line, the extrinsic reward will dominate the intrinsic. Obviously the more certain the reward the more it will dominate; the financial system’s bonus culture is an obvious example. The more that a reward depends upon successful performance of a task, the more it will dominate. Indeed, the distortion of performance metrics to achieve and surpass desired target levels can be expected; soviet era production statistics come immediately to mind.

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Coercion, the use of threats, deadlines and the like, will also accelerate the shift to the extrinsic. Excessive monitoring, a big brother culture, will also drive the shift to the extrinsic; here there are lessons beyond the drive to short-term behaviour for investors with respect to their asset managers. Having offered such a litany of negatives, some balance is needed; interventions which promote self-esteem and self-determination, such as shop-floor quality circles, will promote and develop intrinsic motivation.

Conclusion It is clear that the Transparency Task Force is begin-

ning to have an effect. It is now widely engaged with the parliamentary and regulatory bodies, and the trade and national press.

It is unfortunate that the majority of the responses from the asset management industry have been negative, taking the form of threats to ruin careers, remove advertising or other dire consequences.

Given the intrinsic motivation of the majority of the active participants, this is likely to prove counter-productive for them.

This article has touched upon many subjects related to transparency which would

each merit far longer exposition. It has offered few answers for many questions and will end with yet another.

In the UK, increased transparency requirements have not increased levels of trust.

Public mistrust, apathy and ignorance persist. Is the remedy more of the same, or should we note Einstein’s definition of insanity: doing the same thing over, and over again and expecting different results?

Much work needs doing – far more widely than just pensions.

In a career spanning more than forty years, Con has worked as an infrastructure project financier, corporate advisor, investment manager and research analyst in Europe, Asia and the United States. Con’s career commenced as a graduate trainee with Hambros Bank in 1969 and included periods with Kleinwort Benson, First Boston, Banque Paribas and CIGNA, and was characterised by specialisation in quantitative modelling and analysis. This has varied from the financial modelling of infrastructure projects, to credit, insurance and securities pricing and encompassed pension projection and valuation.

He has served on the boards of a number of educational and charitable foundations and as a trustee of several pension schemes. He is currently Head of Research for the nascent BrightonRock Group. Con has been a a member of the steering committee of the financial econometrics research centre at the University of Warwick and of the Societe Universitaire Europeene de Recherche en Finance. As a research fellow of the Finance Development Centre he published widely on the regulation of financial institutions and pension systems, and also developed new statistical tools for the analysis of financial data, such as Omega functions and metrics. From 1994 to 2001, Con was chairman of the committee on methods and measures of the European Federation of Financial Analysts Societies and currently is a member of their Market Structure Commission. Con has also served as an advisor and consultant to the OECDs private pensions committee and a number of other international institutions.

Editor’s comment: Con’s contribution to the Transparency Task Force has been colossal. For starters, he was there when the ‘ligh-bulb monent’ literally happenned in December 2014, when during a conversation with Dr. Chris Sier and I the idea of a new and wholly indpepndent organisation, dedicated to driving up the levels of transparency in financial services was first conceived.

He has freely and generously given his time and expertise to the cause and he directly contributes to the work of all five of our Transparemncy Task Force Teams, often providing a unique, challenging and sage-like perspective. Con’s article hints at the depths of insight and wisdom on offer - his knowledge is encyclopedic.

Thank you Con, very much.

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ARTICLE: SARAH LUHESHI

THE ROLE OF TRANSPARENCY IN VALUE FOR MONEY

by Sarah Luheshi, Deputy Director | Pensions Policy Institute Much debate and discussion in the recent years has centered on charging levels and caps. We have seen the introduction of the 0.75% charge cap for default funds for automatic enrolled pensions and we wait to see if there will be additional moves in this area; a reduction in the cap or the inclusion of other charges within the existing cap, or a combination of both. The argument put forward is that lower charges result in better value for money for the member.

Recent PPI research conducted into value for money seeks to widen the debate to include the role played by other levers, such as governance, administration and communication in addition to charges.

This article looks at this and also highlights on the role that transparency plays.

have their own definitions (Chart 1).

Although the definitions vary, they are consistent in agreeing that the scope should not be restricted to charges

alone, and should include more qualitative elements, such as communication with members and governance.

Similarly, they suggest a trade-off between contain-

Chart 1 - Different definitions of Value for Money

There is no single definition of value for money. The Office of Fair Trading, The Pensions Regulator and the National Audit Office each

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ing costs and the provision of benefits by the pension scheme, depending on members’ needs.

While there is some consensus that value for money is reflected primarily by higher retirement incomes, other ‘good’ outcomes exist. Along with the pot value, softer outcomes that are valued by members relate to issues around trust, such as: • A sense that their pension scheme is secure • Feeling valued by their employer • Receiving communication on a regular basis It has been possible through our research to identify three outcomes that are likely to be seen as positive across the board.

They are: • The value of the pension pot • Its security and • The level of trust that an individual has it the company’s pension scheme.

Even so, it is complicated as to how to assess value for money.

Ultimately, it may only be possible for the member to assess whether they have received value for money from their pension scheme at the end of their life.

ensuring a better likelihood of securing the outcomes they seek.

Further, the value of the pension scheme to the individual may depend on their other circumstances, such as other pension schemes and household circumstances which may influence how they wish to use their pension funds.

• Communicating the importance of contribution levels, especially in increasing them from the minimum levels, the role of an employer contribution • Ensuring transparency around the charge levels and what is (and isn’t included) • Setting appropriate default strategies for the membership • Delivering effective and efficient administration • Timely, clear and appropriate communication with the membership, to increase member engagement • Challenging, and possibly negotiating, lower charges.

As in life, there may be some degree of compromise in terms of the balance between the different elements driving the members perceived outcome; some members may prioritise security at the cost of value, where they opt for a lower risk investment approach. Similarly, there may be a cost to activities such as communications, through which pension schemes build members’ trust, resulting in higher charges.

Our research also identified other areas such as governance, administration and communication, all which improve aspects such as maintaining or enhancing a member’s trust, encouraging savings or higher levels of savings and

For example, good governance can help with:

Employers’ and pension schemes’ actions can influence outcomes, either by the use of approaches based on theories of ‘nudge’ or by engaging employees in pensions.

If we look more closely at the impact of different levers, charge levels and structures although having a direct impact upon monetary outcomes do not have the most impact. Contribution levels have the most impact upon an individual’s outcome (in terms of private pension income) (Chart 2).

An increase in contributions from 8% to 9% or under automatic escalation up to 12% could mean a 12% or

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Chart 2 - Impact on private pension income for the median earning man on reaching SPA in 2059, percentage difference from the baseline

44% increase to pension pot size for a 22-year-old median earner. Although working longer will help, it too exceeds the impact that lowering charges has for an individual.

Chart 2: Impact on private pension income for the median earning man on reach-

ing SPA in 2059, percentage difference from the baseline Therefore, any actions by those involved in pension schemes which result in increased contributions would appear to lead to improved outcomes, as seen through the eyes of the member.

ing charge levels, charge structures, good governance, communication or administration, core to each element of value for money, and how this is measured and perceived by a member of a pension scheme, is transparency.

If we are to generate and improve the levels of member trust and engagement in pensions, then every element of the process needs to be visible. Any communication needs to be clear and explicit, and in a language that the member can not only understand, but also recognise what action needs to be taken.

Any charge that is made against the scheme needs to be well defined and its role clearly explained.

Trust cannot be returned, or value for money ascertained, without full transparency.

Whether we are consider-

Sarah Luheshi is the Deputy Director of the Pensions Policy Institute (PPI). She has overall responsibility for the PPI’s research programme as well as supporting the PPI’s Director. Sarah has 30 years’ experience in financial services, including extensive international, strategic and management consultant experience with Towers Watson and NMG Consulting. She held a number of senior roles within the Guardian Royal Exchange Group, including strategy, marketing and IT. Her client work varied from post-merger integration and market entry studies to qualitative and quantitative primary research, specifically product development and testing with consumers and distributors.

She has a BSc in Mathematics and Physics from the University of Manchester and an MBA in International Business and Corporate Finance.

If you are interested in finding out more about the PPI’s current research plans or in commissioning research, please contact Sarah at sarah@pensionspolicyinstitute.org.uk Editor’s comment: Sarah’s arrticle does a great job to highlight the chellenges in understanding and defining value for money, as well as emphasising the vital part that transparency plays in achieving it.

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ARTICLE: NIC ROUND

INVESTORS PROVIDE 100% OF THE CA THE RISK, SO WHAT IS A FAIR RETURN

by Nic Round, Managing Director | Trēowe Wealth Adv

We are in the midst of a financial intermediation crisis. Yet, I am reminded of the Supertramp album ‘Crisis? What crisis?” There is little evidence of any really big problems we can pinpoint as a crisis. If we are truly in a crisis, then, once again it will be investors who pay the price.

The crisis unfolding for investors has its basis from this equation: Outperformance - Costs = Return.

The role of the Financial Intermediation Industry (FII) is to focus on performance, whilst investors focus on return.

Why do investors focus on investment return? Is it greed?

I suspect it’s too difficult to measure performance accurately and almost impossible to grasp the underlying costs of financial intermediation.

As a consequence, the easiest method of analysis is the investor’s return.

If an investor is left with a 5% return, does it matter if the FII generated returns of 7%, 10%, 12% or more? Who cares what the intermediation process costs providing the investor is happy with their performance? If the financial

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intermediation process cost 1% and the total return on assets was 6%, leaving the investor with 5%, the investor may feel that’s a fair outcome for all parties. The point at which the equation becomes unfair is probably subjective, partly because it’s almost impossible for it to be objective for the retail investor.

The perspective of the product providers by contrast is simply to accumulate assets under management (AUM).

The way to increase AUM is to concentrate on performance. As long as the performance is more than the costs, the investor will always be in a better position. Moreover, many financial advisors and platform providers focus on AUM too, compounding the problem. There are too many parties all wanting a slice of the limited investment cake!

With the FII selling performance as the prime focus

in the equation and investors focusing on return, this mismatch of perspectives leads to a crisis that is manifested by investors who feel trapped in a system that overstates performance and hides cost.

The impact of this problem is quite simply enormous.

Jack Bogle (Vanguard), David Pitt-Watson (The London Business School) and many others have concluded that costs are in excess of 2% per annum. With many investment advisers charging 1% together with platform costs, it is not unreasonable to estimate total fees of 3% per annum.

The FII argument is not to worry about costs. Their marketing is all about performance. If they could make 17% per annum, would anyone mind if they take 3% in costs? If the total return is 6%, would anyone mind if they take 3%? An investor may accept the FII taking just over 15% of the return for services rendered, but perhaps not 50%. Remember losses. How do you feel about

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APITAL, TAKE 100% OF N?

visers 3% costs when you are losing money? But a yearly comparison is not the crisis. In fact, it is the significant impact of costs over time.

If an investor allocated £100,000 at age 40 to the FII with an investment return of 7% per annum and fees 3% per annum with an expectation of living another 45 years, what is the cost of the financial intermediation? As an investor your £100,000 has grown to £584,117. The financial intermediation process takes £1,516,127 in costs. How is that fair? Even if we use David Pitt-Watsons analysis of 2.21%, the amount payable in costs amounts to £1,279,151.

As a reader, do you believe you are being charged 2.21%? Moreover, do you believe you benefit from above average performance?

If in our example, you were told that the total costs were £1,279,151, how would you feel? Would you accept it? Would you challenge the numbers? The FII argument would be “performance based.” Why would you care about costs if performance is better than average? It’s a very valid argument, but how likely is it?

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What are the chances of consistent outperformance over time? Warren Buffett placed a bet against hedge fund managers in 2008 that they could not beat the S&P index. By the end of 2015, the S&P 500 index fund had a cumulative return of 65.7%, outdoing the hedge fund teams’s 21.9% return.

The S&P has outperformed in 6 of the 8 individual years of the bet too. It’s easy to disregard these statistics on the basis that most retail investors do not invest into hedge funds. The point is that hedge funds are simply actively managed funds. One could argue hedge funds attract the most talented fund managers because they pay the greatest rewards.

If it’s difficult for the hedge

fund community to beat Mr Buffett’s bet, just imagine how hard it is for most active fund managers looking after retail fund investors!

I think Mr Buffett also said Wall Street have some of the best salespeople in the world but not necessarily the best investment professionals. His point illustrates that those selling investments are better at selling than investing.

The FII will use their sales skills to persuade investors that outperformance is the prime focus for an investor.

We would argue it’s about costs. It is also the one thing that offers a more reliable

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outcome.

There is more than enough evidence to explain that costs are too high and performance is never quite as good as the FII want investors to think. Why are investors still not taking notice?

In life, it’s useful to look at analogies. Mount Everest has a stark problem of 200+ bodies frozen, some hidden, some not. “People are somehow able to walk by these bodies and continue climbing by rationalising to themselves that whatev-

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er happened to this person will not happen to me,” says Christopher Kayes, Chair and Professor of Management at the George Washington University in Washington DC. It’s a survival mechanism.

It’s also an over confidence by not measuring the odds. It also happens to other people. In the world of money, investors convince themselves they are not average investors.

All too often, they employ fund managers and advisers who help encourage over confidence. If these

fund managers said, “We can get you average performance”, no one would buy the funds. Yet the evidence shows outperformance is not consistently possible over time. Therefore, the key focus is driving down costs.

It means assessing how your money is managed and then eradicating in the process all that fails to add value. In many circumstances, there is no longer a need for ongoing investment advice. Fund management can be offered with the use of mutual funds or ETFs from as little as

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0.07%. Why not even buy shares direct and DIY? Many investors will be able to be their own fund manager.

As artificial intelligence (AI) and disruptors impact the world of FII, the process of holding assets becomes easier and cheaper. AI will drive down costs. It will help build platforms far more advanced than we have today. In fact, we see the future where investors retake control from existing investment professionals.

The current system is based around employing professionals who know more than you and can build better portfolios than you. This is not true anymore.

It is our role to help investors build and design their own portfolios rather than ask professional advisers at a cost to do the work for them.

Moreover, when an investor accepts the mathematics of performance, the focus of the equation is very firmly rooted in costs not performance.

In our view, investors want to have conversations that are not tainted by conflicts of interest. Too many investment advisers charge based on AUM. This is only

appropriate if they exclusively manage your money.

But if all they do is manage your money, it’s likely they do not add value as much as they would like you to believe.

applying to make decisions?

These strategy issues are so important. Building your knowledge and confidence to make the right decisions will most likely lead to better outcomes.

AI will create more opportunities for investors offering better outcomes and lower costs. Often investors are persuaded that having platforms to hold all assets are beneficial. If you look at your portfolio every day and make daily decisions, a platform may be important. If you just log on to check out values, does that really add value?

Once again, AI disruptors will create simpler, faster, better and cheaper platforms for those that need them to make better decisions.

By leading with greater transparency, this allows more and more research to build data.

Eventually, investors will start to really recognise and see the problems they face.

Costs are so corrosive over time that they impact on the quality of investors’ lives.

Your focus is not to allow it to happen to you. Being aware of the crisis and its impact increases your chances of a successful investment experience over time.

“But when I say our sport is a hazardous one, I do not mean that when we climb mountains there is a large chance that we shall be killed, but that we are surrounded by dangers which will kill us if we let them.”

- George Mallory, 1924

Above all, it is the power of conversation that matters. If you are designing and building your own portfolio, how are you judging success?

What processes are you

Nicholas Round is Trēowe’s Managing Director, Client Strategist, Wealth Adviser, Financial Coach and the firm’s regulated financial advisor.

Based in Shropshire, with clients local, national and worldwide, Nic strives to find the best possible service for his clients to give them financial peace of mind.

He is a Chartered Financial Planner, Certified Financial Planner, and member of Chartered Financial Analysts Institute and Chartered Securities and Investment Institute and a student of life.

Editor’s Comment: For me, the greatest take-away from Nicholas’ article is that he sees powerful AI technlogies disrupting the market, with the potential to completely re-shape the way it works. I geuss that as always, the market participants that have a bright future ahead of them will be those that can see the changes taking place now and consider what is most likely to happen in the future, whilst adapting their propositions to serve the needs of tomorrow’s clients.

How different will the pensions and investment market be 5 years from now? - enormously!

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ARTICLE: MAX MAXWELL

WILL TRANSPARENCY MAKE THINGS

by Max Maxwell, Independant Consultant

For Transparency to truly benefit, we must get the right information to the right people at the right time. Data alone does not help people make good decisions. How have other transparency initiatives been received?

Can we learn from these?

The scale of the challenge Financial literacy is a key objective for politicians seeking to address the savings gap. In the UK, legislation has been used to improve savings. The desire is to encourage a shift away from state or employer sponsored to personal savings.

For example, by the end of 2018, some 1.3 million more employers and some 10 million employees will be taken into a pension, many for the first time. More people will own a personal long term savings plan than ever before.

Getting the right information

to the right people in a format that is relevant to them is key.

Initially, Trustees, Insurers, IGC’s and Professionals will be the primary audience. The concern that the “financially illiterate” buyer may not be ready for this is a relevant one.

new savers? Will the initiative really inspire British workers to take an active role in their planning? Ask savers why they are disengaged and they will tell you that they are put off by the language and confusing array of solutions presented to them.

Transparency will not be delivered overnight. It’s an expensive project and one that should be delivered right, first time. In time, the needs of the end consumer will be paramount.

And that, surely, should the key to our thinking.

Pensions play only a part in this retirement upheaval.

There are many alternatives and more in development.

Indeed, simply comparing one pension against another to assess value for money may deliver a better result than that available today. If, however, that looks very different to the regime which surrounds all of the products that people may use for retirement, will we simply just be confusing them further?

Just how engaged are these

The removal of commission, capping of charges and increasing costs and regulation have reduced the number of intermediaries able to encourage this saving. Online and robo-advice offer a potential bridge but these are solutions for the future.

For most potential investors, the universe of sav-

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CLEAR?

ings products is confusing.

When we add the complex liturgy of charges and fees, it’s little wonder that people are put off.

We need to take care that our ambitions to offer transparency don’t have the opposite effect. Is having too much information, well, too much?

The objectives of The Transparency Task Force are more than laudable.

They are essential is de mystifying the complexity of our financial universe.

Without this, consumers will be presented with all the facts but no more chance of navigating their way through them.

I have considered another

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complex market, that of food labelling, that introduced transparency to help consumers make good decisions. The inadvertent impacts of these changes are a lesson for us.

Food for thought The recent introduction of revised nutrition labels shows how information alone is not enough. These are designed to help consumers make educated decisions and eat more healthily. In reality, the buyer still struggles to make a valid comparison.

For example, “Light” products must contain 30% less fat or calories than a standard product. It doesn’t mean healthier:

they can still contain the same amount of fat or calories as another brand or be loaded with sugar or salt.

A similar story applies to “low fat”, whilst strict guidelines apply to the amount of fat per 100g, it doesn’t limit additional sugar or calories.

A menu of charges?

When we consider our investment products, we should learn from this experience.

Consumers deserve to have information to help them make good decisions. It’s important that all of the factors that impact on the performance of their savings are clear.

Hidden fees and charges

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should rightly be “outed”.

In order to ensure that the consumer is at the heart of this, we need to ensure that the language that we use and the way we present this is consistent and clear.

Simply detailing all of the fees, structures, expenses and costs will not help them. I need to easily compare the product against others, all using the same, clear ‘currency’.

There is a real risk that we, with our professional knowledge and being versed in the “lingua financial” treat our customers as fellow professionals. As I noted above, a small percentage of the population will have access to a professional adviser.

We all want to ensure that this great number of new investors understand and engage in their savings; we need to make sure transparency is relevant to the user.

We need to ensure that Transparency is not just an opportunity for clever marketeers. As a passionate advocate of Transparency, I believe that we have an opportunity to manage cost and confusion out of the industry.

It’s an even greater opportunity to engage with the people that matter: the consumer. And that is where I believe we should focus our efforts.

Technology solutions.

Increasingly, consumers use digital tools to help them in their decision making. The Pensions Dashboard development will help accelerate activity, especially if common standards are mandated. The Transparency Task Force has already had excellent support from some of the market leaders in our industry. These tools will be essential in building a common, accessible platform for consumers.

In order to allow users to make sensible comparisons, these standards need to be common, free and avoid development by consensus.

Having these standards will encourage new developers and providers to collaborate to engage the customer.

For Transparency to be truly effective, consumers, whether professional or public, should be able to make comparisons based on a meaningful context. That won’t make the project easy, but the potential benefits are huge.

A healthier diet Advocates of Transparency have a huge opportunity.

We can learn from the likes of the food industry. By offering investors better, clearer information, they can make good decisions.

The experience of the food industry is that information alone does not deliver the best outcome. Too much information is confusing to the uninformed consumer. Helping people to make relevant comparisons should be our core objective. As a result, we will help drive out hidden costs and create a truly effective market. One that all consumers will want to take part in.

I passionately believe that Transparency will drive better outcomes for the consumer.

We must, however, use the opportunity to engage these consumers. Information on its own will not achieve this. The efforts of this group to build a common language and standards is commendable. This will help ensure that those 10 million new savers are fully involved in their saving future.

Max has looked after IFA’s and Customers for over 25 years. With senior roles in National Accounts, eCommerce SME and delivering Scottish Widows’s Auto Enrolment solutions to over 10,000 employers, he’s had a varied career and benefited from a range of experiences within the sector. He led the providers engagement with technology providers, payroll and regulator and is an active partner in the CIPP’s Friends of AE. Now consulting, he’s working with providers of innovative solutions for consumers.

Editor’s comment: Given the emphasis the Government is now placing on the need to drive up the levels of financial literacy it is important that we make that case that transparency will lead to a more efficient market that truly empowers consumer choice; and that consumers will gravitate towards the more starightforward solutions that higher levels of transparency will encourage.

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WE HAVE JUST A HANDFUL OF PLACES LEFT AT

Who’s speaking?

We have another cracking line-up for you: The Rt Hon Sir Vince Cable, Former Secretary of State for Business Innov. and Skills Alexander Adamou, Fellow, London Mathematical Laboratory Jonathan Lipkin, Director, Public Policy at The Investment Association Jackie Beard, Director, Manager Research Services EMEA at Morningstar Alexander Schindler, President, European Fund and Asset Management Association

So how do I book my place?

JB Beckett, Association of Professional Fund Investors, Author #newfundorder Tony Filbin, Group Chairman, Capital Cranfield Independent Trustees Jamie Jenkins, Head of Pensions Strategy, Standard Life Robin Powell, Editor, The Evidence-Based Investor Colin Meech, National Officer, UNISON - Capital Stewardship Programme

Great question!

Tony Filbin, Group Chairman, Capital Cranfield Independant Pension Trustees Angela Rayner MP, Shadow Minister for Pensions Tom Tugendhat MBE MP, Member of Parliament for Tonbridge, Edenbridge ad Malling

When is it?

- Wednesday 22nd June - 8:30 for a 9:00 start, ending at 16:45

Where is it?

Just click

HERE!

UNISON Centre,

130 Euston Road, London NW1 2AY Edition #2

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ARTICLE: JULIA DREBLOW (BA HONS, DIP PFS)

DO PEOPLE REALLY CHOOSE TO LEAVE THEIR DOOR WHEN DECIDING WHERE TO INVEST?

by Julia Dreblow (BA Hons, Dip PFS), Director | SRI S

Investment Association figures showed that net inflows into ethical and sustainability themed funds hit their highest ever level in 2015 (£715m) – however their proportion of total inflows remained static at 1.2%.

Much has changed in the 27 years I have worked in financial services and indeed over the 32 years since the launch of the UK’s first retail ‘ethical’ option. Scandals have been a regular feature and in spite of frequent regulatory change consumer ‘trust’ remains elusive.

Financial advisers are tasked with identifying and meeting clients’ financial planning needs, yet understanding their personal values, interests and opinions - and what they might mean for their investments – is commonly overlooked.

So are these connected – and if so how might things be improved?

Regulators have historically paid little attention to environ-

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mental, social, governance (ESG) and ethical issues as part of the investment advice process and there has been little pressure to change from within the industry. The regulatory view has been that it is not their role to be ‘prescriptive’ in areas such as this. Or at least that was their response - when approached as part of an UKSIF programme I chaired some years ago.

Consideration of this area is however viewed as ‘best practice’. The international adviser standard ISO 22222 (and BS 8577) requires accredited advisers to ask clients whether or not they would like to bring ‘ethical, social environmental or faith based issues’ into their investment strategies.

Although required to ‘know their clients’ and offer ‘appropriate’ advice other advisers are under no such obligation.

Advisers do however increasingly ask clients if they are interested in this area, which makes the static proportion of ‘ethical and sustainability themed fund’ inflows all the harder to explain.

As a career advocate of the need to match people’s personal aims and opinions to fund options it may be useful to point out that I (perhaps reluctantly) respect the fact that not everyone shares my point of view. Research has proven time and again that ‘profit at any cost’ is indeed the aim of some investors.

Yet I doubt it is controversial to question whether or not 99% of people consciously choose not to bring sustainability, climate change, employment practices or faith based issues into their investment strategies - particularly as some such issues can have significant financial implications.

Today’s wide range of sustainable, responsible and ethical investment (SRI) fund options - coupled with the fact that performance is clearly comparable with other areas - makes this all the more odd. Add to that the growing business case for higher environmental, social and governance standards - and increasing ESG and stewardship related institutional investor ac-

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OPINIONS AND VALUES AT THE

Services tivity and it becomes clear that something is not right.

In particular; if individual investors had access to the same information as ‘major’ investors would they carry on investing as they do today?

2013 UKSIF research hints at a possible answer indicating that ‘43% of people would like to move money away from companies involved in ‘unethical / unsustainable activities’.

2015 Standard Life Investment ‘Millennials’ research indicated even higher levels of engagement amongst younger people, quoting research from the Huffington Post that ‘61% of Millennials are worried about the state of the world and feel personally responsible for making a difference’.

Yet such research is not new.

Indeed it is consistent with the findings of research I commissioned whilst at Friends Provident over a decade ago – where common motivations for ‘investing ethically’ were often found to be ‘to make a difference’ or ‘to encourage positive change’.

support, opposition to change - and the inherent complexities associated with delving into personal values - all no doubt have a part to play.

What all of these have in common however is access to information. Or, put differently, appropriate levels of openness and transparency.

The majority of individual investors have little idea where they invest and are unaware that there are numerous options that may suit their lifestyle choices and opinions far better.

The result of this ‘business as usual’ is that the financial services industry lags others in terms of awareness of options with defined environmental, social or other values based, aims and benefits. This in turn feeds investment opacity and disconnects investors

from their investments.

By contrast, responsible investment, investor stewardship and the integration of ESG factors into investment decisions are now commonplace in other investment markets – which means the opportunity to present such information to individual investors exists.

So, whilst setting out information about environmental, social and governance strategies may not be easy, particularly given today’s distribution models, nor is it impossible.

In order to meet the needs of the individual investor

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market transparency levels would have to be able to cope with the diversity of individual investor opinions.

Investor motivations range from deeply personal to purely financial. Opinions may be muddled or have such clarity of purpose that an adviser may feel out of their depth.

This makes it important to present information in a way that acknowledges the fact that diversity is essential, because people’s aims vary. This in turn requires providers to offer appropriate support material explaining their chosen strategy - and where possible, set out the wider societal implications of investment decision making.

Defining an appropriate level of transparency is not easy. Amongst ‘ethical’ funds - 70 page policy documents are not unheard of – whilst some funds go little further than claiming to be ‘ethical’. Few disclose full lists of investments held – although the degree to which this matters depends

on a range of factors.

The end goal must be to ensure that investors know what they are buying in to. So, if for example, a fund manager holds companies that fit specific themes, researches new issues as they emerge, carefully avoids clearly defined areas and encourages corporate progress - this should be in the public domain - as their ideal audience is likely to be more engaged, informed and enquiring investors. By contrast, a fund that pays no significant attention to this area should make this clear.

A further common difficulty is that ethical, social, environmental and governance issues change over time. Climate change, modern slavery, palm oil, the safety of factories in Bangladesh and impact measurement all emerged onto the SRI (sustainable and responsible investment) scene long after the launch of the earliest green and ethical funds. Communications materials must therefore be sufficiently robust to explain how a fund embraces change.

Given these variations a

key challenge is how to present relevant information in a way that neither bombards people with detail that they are unlikely to read nor is so generic that it is meaningless.

My work in recent years has focused on defining (and supporting) a financial advice process that is sufficiently flexible to cope with different SRI related information requirements. It starts with recommending financial advisers always ask a binary ‘interested / not interested’ question, as with the adviser ISO; moves on to the use of a segmentation model that can match investors’ main interests to investment options - and ends with ‘additional research and refinement where required’ - prior to factoring in other relevant financial planning information.

The ‘SRI Styles’ segmentation model that Fund EcoMarket applies to options with explicit SRI related strategies are as follows: Fund options (onshore, regulated, retail): • • • • • •

Balanced Ethical Negative Ethical Sustainability Themed Environmental Themed Social Themed Faith Based

Corporate level strategies: • ESG Integration • Responsible Ownership Probably the most notable part of this approach is the splitting of ‘ethical’ options into two groups; one that fo-

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cuses on ‘avoidance’, another focusing on funds with more complex approaches. The reason for this is that a historic failure to explain such strategies adequately led to confusion and criticism.

More detailed disclosure sits within additional filter options, text and links to fund manager documentation in order to explain the diversity of strategies within each segment and the crossover between the styles. This additional information shows, for example, that a fund may have sustainability policies, ethical screens or be faith friendly even where these are not a fund’s primary strategy.

The purpose of restricting the number of segments is usability. Users need to be helped to move beyond a tick box ‘interested/not interested’

question towards opening up constructive, informed conversations and the identification of a cohort of ‘potentially appropriate’ options.

From an individual investor’s perspective an approach of this kind which explains explicit fund strategies is likely to be preferable to judging, ranking or rating funds, as such measures are unlikely to identify ‘ethically appropriate’ options - and give no indication of what the fund might do in future.

By focusing on individual client requirements and offering appropriate levels of detail the relationship that follows can become far stronger - as clients understand where they are investing and why.

The investment communi-

ty has made real progress in bringing environmental, social and environmental issues into their investment decision making over recent years. Improving individual investor awareness is a logical progression.

Bringing greater openness to the retail market would require significant additional information disclosure for most fund managers – but the potential benefits are significant.

There can be little doubt that more than one in a hundred people would welcome knowing more about where they invest. If widely supported this could greatly enhance investor experiences, bring potentially valuable societal benefits – and maybe even help to bridge the ‘trust’ gap.

Julia has worked in financial services since 1989, specialising in sustainable, responsible and ethical investment (SRI) since the mid 90’s. A passionate advocate for this area her work now divides into two main areas; ‘SRI consultancy, advisory and collaboration’ – serving on various advisory panels - and running her own web based business.

Her work includes the unique, fund manager sponsored SRI fund hub - Fund EcoMarket.co.uk – the current version of which was launched late 2015 – and adviser support site sriServices. co.uk. Both sites are free to use as they aim to help unlock the potential of the sustainable responsible and ethical fund market by raising awareness of this area.

Her work was shortlisted in the prestigious Corporation of London ‘Sustainable City Awards’ (Sustainable Finance category) awards in both 2015 & 2016 and Highly Commended in the 2015. She has also recently been interviewed for Citywire’s ‘Adviser Knowhow’ series and on Asset TV’s ‘SRI Masterclass’.

Previous work includes being responsible for the Friends Provident SRI proposition for 12 years – and serving as a director of ‘not for profit’ UKSIF for 7 years.

Editor’s comment: It was fascinating for those in attendance at our April Transparency Symposium to hear Barry Gardiner MP explain how difficult it has been, even for MPs, to get to the bottom of where their pension savings are being invested. Julia’s article sets out very clearly the importance many people place on investing in a manner that aligns with their outlook and values, yet there is still a significant disconnect between what the research indicates people would like to do and what they are actually doing. I suspect a lack of transaprency is a significant part of the problem...

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ALL YOU NEED TO KNOW ABOUT:

T E A M S Rapid progress has been made since our first meeting on 6th May 2015. It is perfectly clear that there are many motivated and highly capable people who are dissatisfied with the status quo and, very importantly, are willing and able to work together to make a difference. These individuals are organised into into 5 teams, with each team having a particular area of focus:The following tables show the make-up of the teams; those in bold red are Team Leaders:

Who’s in the Costs & Charges Team?

First Name

Last Name

Job Title

Organisation

Adam

French

Co-Founder & Managing Director

Scalable Capital Ltd

Andrew

Evans

Chief Executive Officer

Smart Pension

Andy

Agathangelou

Founding Chair

Transparency Task Force

Andy

Tarrant

Head of Policy & Government Relations

B&CE The People’s Pension

Angie

Kirkwood

Senior Manager - Industry Development

Scottish Widows

Anna

Tilba

Lecturer in Strategy & Corporate Governance

Newcastle University Business School

Chris

Connelly

Principal Consultant

Aquila Heywood

Chris

Sier

Director

FiNexus

Con

Keating

Head of Research

BrightonRock Group

Daniel

Godfrey

Non-Executive Director

Big Issue Invest Fund Management

Graham

Cook

Portfolio Solutions

Macquarie Securities

Henrik

Pedersen

Managing Partner, Co-Founder

Clerus LLP

Henry

Tapper

Founder

Pension PlayPen

Iain

Clacher

Associate Professor in Accounting & Finance

Leeds University Business School

Iain

Cowell

Head of Investment Solutions, UK & Ireland

Allianz Global Investors

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The Transparency Times | www.transparencytaskforce.org | June 2016 | Edition #2

Costs & Charges Team cont.

Imran

Razvi

Public Policy Advisor

The Investment Association

James

Monk

Head of DC Investments

Aon Employee Benefits

Jamie

Jenkins

Head of Pensions Policy

Standard Life

JB

Beckett

Consulting Chief Investment Officer and Author

New Fund Order Consulting

John

Serocold

Principal

Studio Serocold

Jon

Parker

Director

Jonathan Parker Consulting Ltd

Julius

Pursaill

Pensions & Investment Consultant

Independent

Lucy

Forgie

Policy Adviser

ABI

Martin

Palmer

Head of Corporate Funds Proposition

Zurich Financial Services

Malcolm

Small

Managing Director

Lynecombe Consultancy

Markus

Krebsz

Interim Chief Risk Officer

UNECE GRM

Michelle

Baddeley

Professor of Economics and Finance

University College London

Mike

Webb

Consultant

City Noble

Natalie

Winterfrost

Chair/Client Director

CFA Society, UK/Aberdeen Asset Management

Neil

Morgan

Senior Pension Trustee

Capita Asset Services

Niall

Ferguson

Consultant

Independent

Ralph

Frank

CEO DC (UK)

Cardano

Robin

Powell

Editor

The Evidence-Based Investor

Ronnie

Morgan

Strategic Insight Manager

Royal London

Saul

Djanogly

CEO

Best Interest Consultants

Shyam

Moorjani

Partner, Financial Services Consulting

RSM Tenon

Stephen

Bowles

Head of Institutional Defined Contributions

Schroders

Stephen

Budge

Principal

Mercer

Sunil

Chadda

Managing Director

Cairn Consulting Ltd

Tim

Sharp

Economic and Social Affairs Department

TUC

Tim

Walton

Manager, Data Research and Analysis

Morningstar

Tim

Brown

Head of Consultant Relations

Dimensional Fund Advisors

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43

First Name

Who’s in the Data Team?

Last Name

Job Title

Organisation

Andy

Agathangelou

Founding Chair

Transparency Task Force

Chris

Connelly

Principal Consultant

Aquila Heywood

Christopher

Squirrel

Founder and CEO

Sciurus Analytics

Con

Keating

Head of Research

BrightonRock Group

David

Rich

CEO

Accurate Data Services

Elizabeth

Campbell-Warner

Managing Director

Gabriel Research & Management

Gerry

Wright

Partner

Smith & Williamson Investment Management LLP

Henrik

Pedersen

Managing Partner, Co-Founder

Clerus LLP

Iain

Clacher

Associate Professor in Accounting & Finance

Leeds University Business School

James

Singer

Senior Associate

P-Solve

John

Simmonds

Principal

CEM Benchmarking Inc

Margaret

Snowdon

Chairman

Pensions Administration Standards Association

Markus

Krebsz

Interim Chief Risk Officer

UNECE GRM

Nick

Fleming

Market Development Manager

British Standards Institute

Nils

Johnson

Co-Founder and Director

Spence Johnson Limited

Shaul

David

Fin Tech Sector Specialist

UKTI Financial Services Organisation

Stewart

Bevan

Product Manager Benchmarking

KAS BANK

Sunil

Chadda

Managing Director

Cairn Consulting Ltd

Tim

Walton

Manager, Data Research and Analysis

Morningstar

T E A M S

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The Transparency Times | www.transparencytaskforce.org | June 2016 | Edition #2

Who’s in the Rational Decision-Making Team?

First Name

Last Name

Job Title

Organisation

Alan

Salamon

Managing Director

Corpias

Andy

Agathangelou

Founding Chair

Transparency Task Force

Con

Keating

Head of Research

BrightonRock Group

Henrik

Pedersen

Managing Partner, Co-Founder

Clerus LLP

Henry

Tapper

Founder

Pension PlayPen

Iain

Clacher

Associate Professor in Accounting & Finance

Leeds University Business School

James

Meenan

CEO

JNM Investment Governance

Mark

Miller

Employee Benefit Consultant

Barclays Corporate & Employer Solutions

Markus

Krebsz

Interim Chief Risk Officer

UNECE GRM

Neil

Morgan

Senior Pension Trustee

Capita Asset Services

Neil

Latham

Consultant

Independent

Philip

Brown

Head of Policy

LV

Rachel

Haworth

Policy Officer

ShareAction

Saul

Djanogly

CEO

Best Interest Consultants

Steve

Cave

Associate Director

Smith & Williamson

Tessa

Page

FIA, Principal

Mercer

Tim

Middleton

Technical Consultant

Pensions Management Institute

We are seeking new members in all of our teams.

To learn more about each team’s focus and to express interest in getting involved please email andy.agathangelou@transparencytaskforce.org Who do you know that might also want to know more about ou Teams?

Edition #2

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45

First Name

46

Who’s in the Stewardship Team?

Last Name

Job Title

Organisation

Andy

Agathangelou

Founding Chair

Transparency Task Force

Anna

Tilba

Lecturer in Strategy & Corporate Governance

Newcastle University Business School

Anna

Walton

Principal Consultant

Energised Environments Limited

Barry

Mack

Client Director

Muse Advisory

Con

Keating

Head of Research

BrightonRock Group

David

Weeks

Committee Member

Association of Member Nominated Trustees (AMNT)

Emma

Craig

Marketing Specialist

KAS BANK N.V.

Iuliia

Shpak

PhD Researcher in Finance/ Systematic Strategies

University of East London/Sarasin & Partners

Janice

Lambert

Pensions Consultant

Independent

Joshua

Card

Chief Executive Officer

Kukua

Judith

Donnelly

Partner

Squire Patton Boggs

Julia

Dreblow

Founder

sriServices and Fund EcoMarket

Luke

Hildyard

Policy Lead - Stewardship and Corporate Governance

PLSA

Michael

Kemp

Senior Pensions Technician

Pinsent Masons LLP

Nick

Fleming

Market Development Manager

British Standards Institute

Olivia

Seddon-Daines

Senior Research Analyst

ET Index

Paul

Lee

Head of Corporate Governance

Aberdeen Asset Management

Paul

Marsland

Deputy Director

High Pay Centre

Paul

Hewitt

Senior Development Manager

Vigeo Eiris

Rachel

Haworth

Policy Officer

ShareAction

Sarah

Hutchinson

Consultant

SJ Hutchinson Ltd

Sarah

Wilson

Chief Executive

Manifest

Sebastian

Reger

Partner

Sackers

Terry

Ritchie

Development Director

Trustee Solutions Ltd

Valborg

Lie

Director

Borg Consulting

The Transparency Times | www.transparencytaskforce.org | June 2016 | Edition #2

Who’s in the International Best Practice Team?

First Name

Last Name

Job Title

Organisation

Country

Andy

Agathangelou

Founding Chair

Transparency Task Force

UK

Alex

Mazer

Founding Partner

Common Wealth

Canada

Amy

Auster

Executive Director

Australian Centre for Finacial Services

Australia

Andy

Tarrant

Head of Policy & Government Relations

B&CE The People’s Pension

UK

Anna

Tilba

Lecturer in Strategy & Corporate Governance

Newcastle University Business School

UK

Chris

Sier

Director

FiNexus

UK

Chris

Tobe

Investment Consultant

Stable Value Consultants

USA

Con

Keating

Head of Research

BrightonRock Group

UK

Dana

Muir

Professor

University of Michigan’s Ross School of Business

USA

David

Knox

Senior Partner

Mercer

Australia

Elias

Westerdahl

Sustainable Business Analyst

The Centre for Synchronous Leadership

UK

Eric

Veldpaus

Strategy Director

Novarca Group

Holland

Eric

Plunkett

Owner

Redbrucke

UK

Erik

Conley

Founder

ZenInvestor

USA

Felix

Mezzanotte

Asst. Prof. Co-Team Ldr of Acct. & Law

The Hong Kong Polytechnic University

Hong Kong

Frits

Meerdink

Manager Fund Management

PGGM Investments

Holland

Graham

Wrightson

Partner

Stephenson Harwood LLP

UK

Heinz-Dietrich

Steinmeyer

Professor of Law, Director of the Institute for Labour Law, Social Law and Business Law

University of Muenster

Germany

Ian

Fryer

Head of Research

Chant West

Australia

Imran

Razvi

Public Policy Advisor

The Investment Association

UK

James

Meenan

CEO

JNM Investment Governance

Ireland

Janice

Lambert

Pensions Consultant

Independent

UK

Jerry

Moriarty

CEO

Irish Association of Pension Funds

Ireland

Jonathan

Hall

Head of Financial Services

Aquila

UK

Nicholas

Morris

Visiting Fellow

The Martin School, Oxford

Australia

Nicholas

Firzli

Director-General

World Pensions Council

France

Nikki

Gwilliam-Beeharee

Food and Health Research Manager

Vigeo

France

Paul

Secunda

Professor of Law and Director, Labor and Employment Law Program

Marquette University Law School

USA

Rosalie

Degabriele

Academic Finance Superannuation & Banking

University of Technology

Australia

Steve

Kenzie

Executive Director

UN Global Compact Network UK

UK

SV

Rangan

Senior Executive

AIG

UK

Tomas

Wijffels

Policy Advisor

Federation of Dutch Pension Schemes

Holland

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ALL YOU NEED TO KNOW ABOUT TRANSPARENCY STATEMENT Transparency Statements are a great way to show your support for our international campaign and to align your organisation with our intention to encourage greater transparency in financial services, right around the world.

We believe that higher levels of transparency are a pre-requisite for fairer, safer and more efficient markets that deliver better value for money and better outcomes for consumers.

Furthermore, because of the correlation between transparency and trustworthiness we believe our work will also have a positive impact on the reputation of the financial services market as a whole.

please complete the sentence:

That’s good news for all market participants and all governments, because the world needs a financial services sector that is trustworthy.

and email it to

To provide your transparency statement

Thank you very much indeed

“I believe there ought to be higher levels of transparency in financial services because..........................................................”

andy.agathangelou@ transparencytaskforce.org

Judith Donnelly Partner | Squire Patton Boggs

“I believe there ought to be higher levels of transparency in financial services because pension funds and other institutional investors can only comply with their legal obligations to make informed decisions if they are able to access all relevant information”.

David Clark Director and Chairman Executive Committee | The Institute for Global Financial Integrity

“I believe there ought to be higher levels of transparency in financial services because without transparency investors lack the confidence to invest and markets fail to fulfil their true function of allocating capital efficiently”.

Angie Kirkwood Senior Manager Industry Development | Scottish Widows Chris Connelly Principal Consultant | Aquila Heywood

“I believe there ought to be higher levels of transparency in financial services because that is the only way we are going to gain the trust of our customers and allow us to simplify the way we talk to and engage those customers in making the decisions which will give them the best outcomes in their financial planning” “I believe there ought to be higher levels of transparency in financial services because we look after other people’s money and therefore their futures. It’s as simple as that”.

Robin Powell Editor | The Evidence-Based Investor

“I believe there ought to be higher levels of transparency in financial services because without it investors are unable to work out how much they’re paying and how much (or more to the point how little) value fund managers are adding to the investment process”.

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The Transparency Times | www.transparencytaskforce.org | June 2016 | Edition #2

TS Elizabeth Campbell-Warner Co-Founding Director - Head of Strategy & Research | Gabriel Research & Management Ltd John Greenwood Editor | Corporate Adviser

“I believe there ought to be higher levels of transparency in financial services because transparency is a prerequisite to building trust and trust is essential to the development of a healthy, sustainable financial services industry and the consumers it serves”

“I believe there ought to be higher levels of transparency in financial services because opacity is to journalists what a red rag is to a bull. As long as things are hidden, trust in the industry will remain low.”

Martin Palmer Head of Corporate Funds Proposition | Zurich

“I believe there ought to be higher levels of transparency in financial services because it will help to provide a level playing field as well as helping to restore trust and confidence amongst consumers that they are receiving value for money. This is particularly important at a time when increasing consumer engagement and understanding is so critical”.

Bryan Beeston “I believe there ought to be higher levels of transparency in Director | financial services because transparency builds trust, and all ITM Limited consumers and market participants will benefit from improved clarity and thereby increased levels of understanding enjoyed by the end customer”.

Olivia Seddon-Daines “I believe there ought to be higher levels of transparency in finanSenior Research Analyst | cial services because I am concerned that the everyday pension ET Index saver is embroiled in a system which charges fees at every turn, which invests in volatile markets that do not price in carbon risk, and, most importantly, that has proven itself unable/unwilling to accept ownership of endemic risks to the system, and the knockon effects to the real economy”.

Jon Parker “I believe there ought to be higher levels of transparency in CEO | financial services because without it, customers will simply Jonathan Parker continue to mistrust the industry and lose out financially. However, Consulting we would be wise to remember that more information and data can itself be a hindrance to improving outcomes”.

Nicholas Morris “I believe there ought to be higher levels of transparency in finanAcademic Visitor | cial services because financial services are key to our economy St Anthony’s College, and society, and transparency is necessary to encourage trustworOxford thy behaviour by financial services professionals. It is important that we define their obligations and responsibilities clearly, and then hold the industry and those who work within it to account.”

Shyam Moorjani “I believe there ought to be higher levels of transparency in Partner | financial services because pension scheme members are entitled RSM to know the full cost, including all transactions, for the administration and investment of their money. Transparency will also allow benchmarking and informed comparisons to allow investors to make informed and better investing decisions and to enable them to improve outcomes to reach their financial goals.”

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ALL YOU NEED TO KNOW ABOUT TRANSPARENCY STATEMENT Matthijs Verweij BD Mgr, Pensions | KAS BANK N.V. Ralph Frank CEO - DC (UK) | Cardano Sunil Chadda Managing Director | Cairn Consulting Ltd William Goodhart Chief Executive | CFA Society of the UK

Stewart Bevan UK Product Manager | KAS BANK N.V. Iuliia Shpak PhD Candidate Financial Economics/ Asset Pricing | University of East London Colin Meech National Officer | UNISON - Capital Stewardship Programme Anita Skipper Senior Analyst Corporate Governance | Aviva Investors Rachel Haworth Policy Officer | ShareAction

50

“I believe there ought to be higher levels of transparency in financial services because more transparency leads to better governance and in control management of pension schemes in all aspects”.

“I believe there ought to be higher levels of transparency in financial services because users of our services should be able to understand what is being done for them and the corresponding charges being levied”.

“I believe there ought to be higher levels of transparency in financial services because every customer has the right to know exactly how much goods and services cost at the point of purchase” “I believe there ought to be higher levels of transparency in financial services because it contributes to the establishment of trust which can improve consumer outcomes. To date, the focus has been on costs and performance, but the investment profession and its stakeholders would also benefit from an improved understanding of the purpose of investment and from the processes employed on their behalf.”

“I believe there ought to be higher levels of transparency in financial services because stakeholders deserve to have access to the right information, to inform the best levels of decision-making and improve outcomes”.

“I believe there ought to be higher levels of transparency in financial services because Transparency is critical for investor confidence and trust in financial markets” “I believe there ought to be higher levels of transparency in financial services because Pension scheme members should know how much it costs to be a member of their scheme. The full cost, including all transactions, for the administration and investment of their money”.

“I believe there ought to be higher levels of transparency in financial services because it is only through transparency that we can gain the trust required to succeed.”

“I believe there ought to be higher levels of transparency in financial services because ensuring institutional investors are directly accountable to the people whose money they look after is the only way to transform the system into one that serves savers, society and the environment”.

The Transparency Times | www.transparencytaskforce.org | June 2016 | Edition #2

TS Stephanie Baxter News Editor | Professional Pensions

“I believe there ought to be higher levels of transparency in financial services because we need to tackle unnecessarily high charges and ensure investors get value for money. This is integral to giving people the best possible retirement outcomes.”

Nils Johnson “I believe there ought to be higher levels of transparency in Co-Founder and Director | financial services because it is good for business. Confidence, Spence Johnson Ltd efficiency, growth and profitability are all enhanced – over the long term – by greater transparency”.

Andy Agathangelou “I believe there ought to be higher levels of transparency in finanFounding Chair | cial services because it holds the key to regaining the trust of the Transparency Task Force consumer, delivering value-for-money and operating a competitive market”.

Jonny Paul Freelance Journalist

Henrik Pedersen Managing Partner, Co-Founder | CLERUS LLP John Belgrove Senior Partner | Aon Hewitt

“I believe there ought to be higher levels of transparency in financial services because financial advice is still generally seen as the preserve of the wealthy and post-crisis there is still much distrust. So I believe that a campaign from within that homes in on greater transparency, focusing more on consumer outcomes, that does not stem from the regulators is a powerful way to show intent”.

“I believe there ought to be higher levels of transparency in financial services because it will be good for everyone. Consumers will be able to compare and demand better value for money and the financial services industry itself will benefit from becoming more competitive, lean and effective”.

“I believe there ought to be higher levels of transparency in financial services because consumers and clients need to trust the industry through having access to clear, open, honest, jargon-free information in order to make informed choices to meet their financial objectives.”

“I believe there ought to be higher levels of transparency in financial services because financial markets are social constructs and financial services are a public good”

Alexander Adamou Fellow | London Mathematical Laboratory Anthony Filbin “I believe there ought to be higher levels of transparency in finanChairman | cial services because it will have such a beneficial impact upon Capital Cranfield Trustees incomes in retirement”

To secure your place at our next Transaprency Symposium Just click here!

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RECOMMENDED READING This section is for academics and authors to advertise (without cost) their relevant books, white papers, academic articles, research findings and so on, so that all our members can know about the thought-leadership, considered opinion and analysis that is available through their work. If you would like to submit a piece of your own work, or the work of another that you would recommend to our members, please get in touch through: andy.agathangelou@transparencytaskforce.org

“What They Do With Your Money; How the Financial System Fails Us and How to Fix It”

Each year we pay billions in fees to those who run our financial system. The money comes from our bank accounts, our pensions, our borrowing, and often we aren’t told that the money has been taken. These billions may be justified if the finance industry does a good job, but as this book shows, it too often fails us. Financial institutions regularly place their business interests first, charging for advice that does nothing to improve performance, employing short-term buying strategies that are corrosive to building long-term value, and sometimes even concealing both their practices and their investment strategies from investors. In their previous prizewinning book, The New Capitalists, the authors demonstrated how ordinary people are working together to demand accountability from even the most powerful corporations. Here they explain how a tyranny of errant expertise, naive regulation, and a misreading of economics combine to impose a huge stealth tax on our savings and our economies.

By David Pitt-Watson, Stephen Davis and Jon Lukomnik, will be published in June. To find out more, visit: http://yalebooks.co.uk/display.asp?K=9780300194418

“Swimming with Sharks: My Journey into the World of the Bankers” Joris Luyendijk, an investigative journalist, knew as much about banking as the average person: almost nothing. Bankers, he thought, were ruthless, competitive, bonus-obsessed sharks, irrelevant to his life. And then he was assigned to investigate the financial sector.

Joris immersed himself in the City for a few years, speaking to over 200 people - from the competitive investment bankers and elite hedge-fund managers to downtrodden back-office staff, reviled HR managers and those made redundant in the regular ‘culls’. Breaking the strictly imposed code of secrecy and silence, these insiders talked to Joris about what they actually do all day, how they see themselves and what makes them tick. They opened up about the toxic hiring and firing culture. They confessed to being overwhelmed by technological and mathematical opacity. They admitted that when Lehman Brothers went down in 2008 they hoarded food, put their money in gold and prepared to evacuate their children to the countryside. They agreed that nothing has changed since the crash.

Joris had a chilling realisation. What if the bankers themselves aren’t the real enemy? What if the truth about global finance is more sinister than that?

By Joris Luyendijk. To find out more, visit: https://www.amazon.co.uk/Swimming-Sharks-Journey-World-Bankers/dp/1783350644?ie=UTF8&*Version*=1&*entries*=0

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The Transparency Times | www.transparencytaskforce.org | June 2016 | Edition #2

“Capital Failure: Rebuilding Trust in Financial Services” Adam Smith’s ‘invisible hand’ relied on the self-interest of individuals to produce good outcomes. Economists’ belief in efficient markets took this idea further by assuming that all individuals are selfish.

This belief underpinned financial deregulation, and the theories on incentives and performance which supported it. However, although Adam Smith argued that although individuals may be self-interested, he argued that they also have otherregarding motivations, including a desire for the approbation of others.

This book argues that the trust-intensive nature of financial services makes it essential to cultivate such other-regarding motivations, and it provides proposals on how this might be done.

By Nicholas Morris and David Vines.To find out more, visit: https://www.amazon.co.uk/Capital-Failure-Rebuilding-Financial-Services/dp/0198712227

“#New Fund Order - A Digital Death For Fund Selection?”

Safe within its bubble, the City’s asset management industry has existed largely unchanged for over 20 years but no longer. A new digital threat lurks in the shadows.

Target assigned, Jon Beckett (‘JB’) hunts down the value chain between fund buyers and fund managers and tackles the difficult issues head-on. Get inside the head of one of the UK’s most controversial investment gatekeepers.

Think differently about buying funds, multi-manager and the way the industry works. A digital survival guide (of sorts) for anyone working in the fund and wealth industry. Wet work, it’s a dirty business!

By JB Beckett. To find out more, visit: http://www.amazon.com/NEW-FUND-ORDER-JB-Beckett/dp/1320639259

“Towards a New Pension Settlement” This volume presents the recent experiences of pension reform in seven countries: Australia, Canada, Germany, Netherlands, Poland, Sweden and the United Kingdom.

Faced with common problems of ageing societies and constraints on taxation levels, all are increasingly passing responsibility for saving for retirement to citizens.

However, there is enormous variety between countries in the degree to which the state intervenes to mitigate the risks which the individual can face in saving for a pension.

By Gregg McClymont and Andy Tarrant. To find out more, visit:

https://www.amazon.co.uk/Towards-New-Pensions-Settlement-International-ebook/dp/B01EYRKJCS/ref=sr_1_1?ie=UTF8&qid=1462913044&sr=8-1&keywords=gregg+mcclymont Edition #2

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ALL YOU NEED TO KNOW ABOUT THE DIRECTORY OF PRO-TRA If you lead a pro-transparency organisation you can speak out and advertise in The Directory of Pro-Transparency Organisations.

This is an important initiative because the market needs to know that there are many organisations that see transparency as a commercial virtue, and do not fear it as a threat. We are happy to consider different classifications to those shown.

All enquiries about advertising in the Directory to: Transparency Task Force Ltd, andy.agathangelou@transparencytaskforce.org+44 (0) 7501 460308

FIDUCIARY MANAGERS: Ralph Frank, CEO DC (UK) | Cardano E-mail: info@cardano.com Website: www.cardano.com Telephone: +44 (0)20 3170 5910

Cardano was founded in 2000 and now has over 150 staff with backgrounds in the areas of risk management, investment management, research, actuarial and investment advisory. Cardano studies the causes and impact of risk and costs in order to significantly improve financial performance and resilience. We currently provide Investment Advisory or Fiduciary Management services to over 1.3m pension fund beneficiaries with assets totalling over £120bn.

PENSION ADMINISTRATION: Margaret Snowdon OBE, Chairman | Pensions Administration Standards Association E-mail: info@pasa-uk.com Website: http://www.pasa-uk.com/ Mobile: 07983 565955

Is this also the right classification for you?

Is this also the right classification for you?

The Pensions Administration Standards Association (PASA) is a not-for-profit organisation which acts as a focal point to engage with industry and government on pensions administration matters. It was created to provide an independent infrastructure to set, develop, and provide guidance on pensions administration standards. It is an independent accreditation body, assessing the achievement of good pension administration standards by schemes and providers.

ACADEMIC INSTITUTIONS: Prof. Dr. Heinz-Dietrich Steinmeyer University of Muenster / Germany School of Law Universitätsstrasse 14-16D-48143 Muenster Phone 49-251-8329744 Mobile 49-171-8384816 Mail: steinmeyer@uni-muenster.de

Is this also the right classification for you?

I am a professor for Social Security Law, Labour Law and Civil Law at the University of Muenster Law School. My special field is pensions – occupational/ supplementary pensions as well as public pensions. I am doing consulting work nationally and internationally including international organizations (EU etc.). I am the Chairman of the European Network for Research on Supplementary Pensions.

INVESTMENT GOVERNANCE CONSULTANTS:

54

Also right for you?

Henrik Pedersen, Managing Partner & Co-Founder | Clerus LLP E-mail: henrik.pedersen@clerus.co.uk Website: http://www.clerus.co.uk/ Telephone: +44 20 3356 2845 Mobile: +44 7767 656234

We partner with pension schemes and other asset owners to review and improve investment decisions, governance and value-for-money, through independent and informed investment analysis. As a result, investment outcomes can be improved without the need to change service providers or taking on more investment risk. We offer a free initial assessment, so why not try us out?

James N Meenan, Principal | JNM Investment Governance E-mail: james@jnmresearch.com Website: www.jnmresearch.com Telephone: +353 (0)1 687 1027 Mobile: +353 (0)86 257 2646

JNM Investment Governance gives trustees independent coaching and support to develop strategies and techniques to stem the overwhelming resource handicap they face in discussions with investment professionals.

JNM’s objective is to facilitate a constructive two way dialogue with attendant benefits for all parties.

The Transparency Times | www.transparencytaskforce.org | June 2016 | Edition #2

ANSPARENCY ORGANISATIONS

DATA SERVICES: David Rich MIod, CEO | Accurate Data Services E-mail: david.rich@accuratedata.co.uk Website: http://www.accuratedata.co.uk/ Telephone: 01603 813366w Mobile: 07919918623

Is this the right classification for you?

David is Chief Executive of Accurate Data Services, a specialist data quality and positive people tracing business that is focused on unclaimed assets in the financial service sectors. ADS traces lost members, clients and policy holders for a variety of organisations including Life and Pensions funds, Banks and Asset Managers. The goal is to help businesses reunite their customers / members with their assets and deliver positive consumer outcomes. David is an active campaigner for transparency and action around the large unclaimed assets issues present in the UK.

INVESTMENT CONSULTANTS:

FINANCIAL PLANNERS:

WEALTH MANAGERS:

Is this the right classification for you?

ACTUARIES:

Is this the right classification for you?

PENSION SCHEME PROVIDERS:

PENSION SCHEME SELECTION EXPERTS:

ASSET MANAGERS:

Is this the right classification for you?

PENSION SCHEME CONSULTANTS

Is this the right classification for you?

RESEARCH ORGANISATIONS:

Is this the right classification for you?

INSURANCE COMPANIES:

Is this the right classification for you?

BANKS:

Is this the right classification for you?

REGULATORS AND GOVERNMENT DEPARTMENTS:

TRADE UNIONS:

Is this the right classification for you?

TRADE BODIES:

Is this the right classification for you?

CAMPAIGN GROUPS:

Is this the right classification for you?

PENSION SCHEME COST REDUCTION CONULTANTS

CONSULTING ACTUARIES: Edition #2

|

Is this the right classification for you?

Is this the right classification for you?

Is this the right classification for you?

Right for you?

Is this the right classification for you?

June 2016 | www.transparencytaskforce.org | The Transparency Times

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THE DIRECTORY OF PRO-TRANSPARENCY ORGANISATIONS

ANALYTICS ORGANISATIONS:

Is this the right classification for you?

PR FIRMS:

Is this the right classification for you?

EMPLOYEE BENEFIT CONSULTANTS:

Is this the right classification for you?

BENCHMARKING CONSULTANTS:

Is this the right classification for you?

INDEX PROVIDERS:

Is this the right classification for you?

HEDGE FUNDS:

Is this the right classification for you?

PRIVATE EQUITY:

Is this the right classification for you?

PUBLISHERS AND PUBLICATIONS:

Is this the right classification for you?

INDEPENDENT TRUSTEES:

EMPLOYER COVENANT CONSULTANTS:

POLITICAL PARTIES:

Is this the right classification for you?

DATA SERVICES:

Is this the right classification for you?

BUILDING SOCIETIES:

Is this the right classification for you?

COMMUNICATION CONSULTANCIES:

Is this the right classification for you?

CUSTODIANS:

Is this the right classification for you?

LAWYERS:

Is this the right classification for you?

GOVERNANCE CONSULTANTS:

Is this the right classification for you?

Is this the right classification for you?

If you missed May’s Launch Edition, not to worry, just click here!

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The Transparency Times | www.transparencytaskforce.org | June 2016 | Edition #2