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October 2016

This month’s contributors include: John McCreadie

Head of Sales (UK), Momentum Pensions Page 36

Philip Miller

Founder, Pension Focus Page 14

Andy Agathangelou Founding Chair, The Transparency Task Force Pages 3 & 31

Pete Eggleston Co-Founder, BestX Page 48

JB Beckett

UK Representative Association of Professional Fund Investors Page 52

Sophia Morrell

Oren Kaplan

David Weeks

Co-Chair, AMNT Page 42

Independent Media Consultant Page 46

Dr. Kara Tan Bhala

Luis Rivera

Daniel Godfrey

Co-Founder, Sharing Alpha Page 40

Seven Pillars Institute for Global Finance & Ethics Page 56

Founder & CEO, ETFmatic.com Page 24

Co-Founder, The People’s Trust Page 28

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...is the campaigning community dedicated to driving up the levels of transparency in financial services, right around the world.

...is the official publication of the Transparency Task Force. It is a great opportunity for our community to share news and views, insights and ideas, right around the world.

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The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


COMMENT FROM THE EDITOR

Important update on our ‘Open Letter to Frank Field MP’ initiative by Andy Agathangelou, Founding Chair | The Transparency Task Force Andy Agathangelou, Founding Chair of the Transparency Task Force provides an update on the initiative to ask the Work & Pensions Committee to open an Inquiry into pensions & investment charges. In last month’s edition of the Transparency Times I explained that the idea of an Open Letter being sent to Frank Field MP was discussed at the Transparency Strategy Summit held at the House of Commons on 12th September. I also sought feedback on the draft letter and invited people to co-sign it to show support for what we are seeking. Just in case you weren’t at the Summit and didn’t read the last edition of the Transparency Times I’ll briefly explain that we are seeking an inquiry into the costs and charges affecting pensions and investments. We want that inquiry carried out by the Work & Pensions Committee because there is

such widespread confidence in their ability to carry out a task of this nature in a thorough and tenacious way. That’s important because it’s not going to be easy to investigate the rather opaque and terribly complicated world of investment charges. But anybody that has seen or read about how the Work & Pensions Committee handled the BHS pensions saga will understand why they’d be the “Dream Team” to do this. They work in a particularly professional (and refreshingly non-partisan) way; and they deserve all the many compliments received at the Commons Debate last week; alongside the Business, Innovation & Skills Committee they so successfully partnered with.

Of course, there is no way of telling whether the W&P Committee would want to carry out such a task but when I spoke about the idea of such an inquiry with one of the W&P Committee Clerks a while back it was explained to me that we’d need to show there was a good level of interest in an inquiry for it to be considered, and that’s where the idea of an Open Letter and a petition came from. The main purpose of this article is to update you on what’s happened since the last edition: We have finalised the letter. Many thanks to everybody that helped to craft it - I’m really pleased with the end result because it sets out a

The picture below was taken at the Transparency Strategy Summit held at the House of Commons on 12th September. For the avoidance of doubt not all of the individuals pictured are involved with our Open Letter initiative - several of the people below have a regulatory or Government Department role.

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broad range of ways in which such an inquiry will benefit the consumer, Government policy, market participants - in fact there really is a great chance for a win/win all round. It’s worth noting that we added a paragraph relating to a topic that is of enormous interest to many people - the desire for greater transparency on asset holdings and the stewardship around those holdings. The belief is that people shouldn’t have to battle to understand where and how their money is being invested. Here’s the final version of the Open Letter that we’ll be sending, with the list of people that have ‘signed up’ so far: The Rt. Hon Frank Field MP Chair, Work and Pensions Committee House of Commons London SW1 OAA Dear Mr. Field, We are writing to you as a group of independent individuals and organisations, motivated and united by the desire to help protect the interests of the UK’s saving public, through the better provision of transparent, consistent and straightforward disclosure of all the costs and charges they pay.  It is vital that we have transparent, consistent and straightforward costs disclosure because opacity and obfuscation on pension and investment costs leads to: #1. Decision-makers, including consumers, being unable to exercise ‘informed choice’ properly: They find the market opaque, complex and confusing: It is difficult to identify value for money.  #2. The risk of future litigation: Consumers may argue they are not being treated fairly. Such action would severely damage confidence in the sector.  #3. Seemingly impotent market forces: In this sector, the ‘invisible hand’ seems unable to work its ‘magic’ to create a healthy, competitive and efficient market.  #4. Poor consumer outcomes: If costs are 2% p.a. and gross market returns 5% p.a., a 20-year-old saving £100 per month until 65 will lose 42.55 % of his/her pension fund to costs.  #5. A marketplace where progressive, innovative and highly cost-effective offerings that do represent good value for money inexplicably struggle to get the market share they should.  #6. The risk that the success of the Government’s pensions policy is jeopardised: Those automatically enrolled might opt out if they are later disappointed by their net of costs returns.  #7. The risk that should the ‘high costs/low returns’ reality continue to prevail, belief in the wisdom of deferred gratification and confidence in long term savings will be undermined.  #8. Investment Governance Committees and Trustee Boards struggle with their duty to manage scheme’s costs properly: ‘You can’t measure, monitor or manage what you cannot see.’  #9. Bad publicity, falling trust and apathy: The public’s confidence in pensions is falling sharply and we want to stop it falling ‘below the point of no return’: This is a serious and systemic risk.  #10. The UK’s savings market, including pensions, not being seen to be well-governed, transparent and trustworthy: That’s a particularly important point in our post-Brexit world.  Furthermore, we believe that savers should not only know what their savings cost; they should also know where and how their money is invested. Greater transparency in investment holdings and the stewardship around those holdings is needed. On the basis that it is hard even for MPs to establish where and how their own Parliamentary Contribution Pension Fund is being invested, it follows that the public as a whole may be similarly challenged.

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The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


In general terms, we believe that: · This is an important and widespread public interest issue; it has parallels with the known shortcomings that are affecting the energy sector’s opaque and complex regime of tariffs. · Greater transparency on costs and investment holdings will help create the better-served, better-engaged and better-performing savings market we all want. · There is merit in doing all we collectively can to help sustain the success of the Government’s automatic enrolment pensions policy. · The issues raised in this letter affect Defined Benefit and Defined Contribution pension schemes and cannot be dealt with fully under the scope of your existing Defined Benefit pensions inquiry. · In a post-Brexit world, we shouldn’t underestimate the value to our economy of the potential for the UK becoming the world-leader in pensions and investing transparency · Your Committee is uniquely placed to lead an open enquiry that we are confident would be run in a constructive, forensic, inclusive, robust and non-partisan way, for the long-term benefit of all. · There is excellent regulatory activity underway by DWP, FCA and TPR; your enquiry would support that work by ‘pulling it all together’, creating an even more cohesive approach. To conclude: For reasons of social justice, market efficiency, good governance, national reputation and to help protect the ongoing success of the Government’s pensions policy, we would like your Committee to open an inquiry into the matters set out in this open letter. We look forward to hearing from you. For administrative purposes please reply to andy.agathangelou@transparencytaskforce.org Yours sincerely, All those listed below, who are equal co-signatories in this endeavor.

First Name Nick

Last Name Boyes

Position Managing Director

Organisation Able Governance Ltd

Website www.able-governance.co.uk

David

Rich

CEO

Accurate Data Services Ltd

www.accuratedata.co.uk

Phil

Ninness

Business Development Manager

Accurate Data Services Ltd

www.accuratedata.co.uk

Tracey

Sharman

Head of Operations

Accurate Data Services Ltd

www.accuratedata.co.uk

Aidan

Dennis

Managing Director

Amaces

www.amaces.com

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John

Paradise

Committee Member

Association of MemberNominated Trustees

www.amnt.org

Bob

Scott

Chairman

Association of Consulting Actuaries

www.aca.org.uk

JB

Beckett

UK Representative, Author

http://profundinvestors.com

Mark

Miller

Pete

Eggleston

Vice President, Employee Benefit Consultant Founder Director

Association of Professional Fund Investors Barclays Corporate & Employer Solutions BestX

Jo

Thresher

Director

Better With Money

www.BetterWithMoney.com

Valborg

Lie

Director

Borg Consulting

www.borg-consulting.org

Sunil

Chadda

Managing Director

Professor Andrew

Clare

Chair in Asset Management

Professor David

Blake

Professor Steve

Haberman

Maurice

Frankel

D i r e c t o r, P e n s i o n s Institute Professor of Actuarial S c i e n c e , Faculty of Actuarial Science and Insurance Director

Cairn Consulting Ltd Cass Business School Cass Business School Cass Business School

Tony

Filbin

Edward

www.barclays.com

www.bestx.co.uk

http://www.cass.city.ac.uk/ https://www.cass.city.ac.uk https://www.cass.city.ac.uk

Campaign for Freedom of Information

www.cfoi.org.uk

Chairman

Capital Cranfield Holdings Ltd

www.capitalcranfield.co.uk

Bushnell

Compliance Director

Cavendish Medical

www.cavendishmedical.com

Jeremy

Coller

CIO

Coller Capital

www.collercapital.com

John

Howard

Director

Consumer Insights Ltd

www.consumer-insights.co.uk

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Alan

Salamon

Managing Director

Corpias

David

Stripp

Principal

David Stripp Consulting

Andrew

Penketh

Crowe Clark Whitehill LLP

Emma

Gleaves

Niall

Ferguson

Partner, Head of Pension Funds Employee B e n e f i t s Consultant P r i n c i p a l Consultant

Luis

Rivera

Co-Founder CEO

ETFmatic Ltd

www.etfmatic.com

Jan

Lambert

Independent Consultant

Chris

Hewett Keppel-Palmer

Finance Innovation Lab Husky Finance

http://financeinnovationlab.org

Nick

Head of A d v o c a t e Programme Head of Strategy

Fiona

McDonagh

Senior Scheme Secretary

Inside Pensions

www.insidepensions.com

SV

Rangan

Director

Jane

Marshall

Partner

IFG Worldwide Ltd Jane Marshall Consulting LLP

James

Meenan

Principal

Vidya

Nathan

A s p i r i n g Investment Consultant

Mike

Barrett

Francisco

&

www.corpias.co.uk

www.crowecw.co.uk

Engaging Reward

www.huskyfinance.com

www.janemarshallconsulting.com

JNM Investment Governance

http://www.jnmresearch.com

Consulting Director

The Lang Cat

www.langcatfinancial.com

Gomes

Professor Finance

London Business School

www.london.edu

Philip

Brown

Head of Policy

LV=

www.lv.com

Terence

Prideaux

Managing Director

Morley Hall Ltd

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of

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Tim

Walton

Manager, Data and Research Strategy

Morningstar

www.morningstar.co.uk

Barry

Mack

Client Director

Muse Advisory

www.museadvisory.com

Alan

Browne

CEO

MyFutureNow

www.myfuturenow.co.uk

Malcolm

Booth

Chief Executive Officer

www.nfop.org.uk

Alex

Noble

Director

JB

Beckett

Derek

Bradley

Consulting Chie Investment Officer and Author Founder & CEO

National Federation of Occupational Pensioners Noble & Associates Ltd New Fund Order Consulting Panacea Adviser

www.panaceaadviser.com

Callum

Mayor

Associate Partner

PEN Partnership LLP

www.penpartnership.com

Henry

Tapper

Founder

Pension PlayPen

www.pensionplaypen.com

Philip

Miller

Founder

Pensions Focus

www.pensionfocus.net

Tim

Middleton

Technical Consultant

www.pensions-pmi.org.uk

Daniel

Godfrey

co-Founder

Pensions Management Institute The People’s Trust.

Jon A

Collins

Director

Paul

Trickett

Chair

Malcolm

Small

Executive Chairman

Retirement Income Alliance Ltd

www.riaonline.co.uk

Rob

Lake

Responsible Investment Advisor

Rob Lake Advisors

www.roblakeadvisors.co.uk

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Professional Pensions and Investments Ltd. Railpen Investment

http://www.citynoble.com

www.rpmi.co.uk

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Nick

Greenwood

Pension Fund manager

The Royal Borough of Windsor & Maidenhead

https://www3.rbwm.gov.uk

David

Pitt-Watson

Leader

The RSA’s Tomorrow’s Investor Project

https://www.thersa.org/action-and-research/rsa-projects/economy-enterprise-manufacturing-folder/pensions

Dr. Hari

Mann

Director

The RSA’s Tomorrow’s Investor Project

https://www.thersa.org/action-and-research/rsa-projects/economy-enterprise-manufacturing-folder/pensions

Adam

French

Co-founder & Managing Director

Scalable Capital Ltd

www.scalable.capital

Catherine

Howarth

Chief Executive

ShareAction

www.shareaction.org

Lesley

James

Lead Adviser & Co-Director

Simplified Money

www.simplified-money.co.uk

Sarah    

Hutchinson        

Consultant

Andrew

Evans

Chief Executive Officer

SJ Hutchinson Ltd   Smart Pension

Gerry

Wright

Partner

Dr. Daniela

Carosio

Senior Partner

Graham

Wrightson

Partner

John

Serocold

Principal

Studio Serocold

Dan

Norman

CEO

TCF Investment

Andy

Agathangelou

Founding Chair

Transparency Task Force

www.transparencytaskforce.org

Nic

Round

Client Strategist & Wealth Adviser

Treowe Wealth Advisers

www.treowe.co

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Smith & Williamson Investment Management Sustainable Value Investors Stephenson Harwood LLP

www.autoenrolment.co.uk www.smithandwilliamson.co.uk

www.sustainablevalueinvestors.com www.shlegal.com

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Alex

Letts

Chief Unbanking Officer

U

www.uaccount.uk

Michelle

Baddeley

Professor in Economics & Finance

UCLÂ Bartlett Faculty of Built Environment

www.ucl.ac.uk

Markus

Krebsz

Interim CRO

Steve

Kenzie

Executive Director

Noel

Whiteside

Professor of Comparative Public Policy

Paul

Hewitt

Michael

Cotter

Stuart

Travers

Senior Business Development Manager Solicitor Advocate & Partner Director

University College London Member of UNECE GRM

www.unece.grm

United Nations Global Compact UK University of Warwick

www.unglobalcompact.org

Vigeo Eiris

www.eiris.org

Waterside Legal LLP

www.waterside.legal

Winterbourne Trustee Services Limited.

www.winterbourne-trustee.co.uk

www2.warwick.ac.uk

In addition to the above, the individuals listed below from outside the UK also wish the UK’s Work & Pensions Committee to open an inquiry into costs and charges in pensions and investments on the basis that doing so will help shine a light on what is a very international problem; and perhaps help the international community coalescing around this issue to develop some international best practice. The UK can help to lead the way. First Last Position Organisation Website Country Name Name Sam Instone CEO AES International www.aesinternational. United Arab com Emirates (DIFC) Preston

McSwain

Managing Partner

Fiduciary Wealth Partners

www.FWP.Partners

USA

Stephen

Davis

Harvard Law School

https://pcg.law.harvard.edu

USA

Richard

Field

Associate Director and Senior Fellow, Programs on Corporate Founder

Institute for Financial Transparency

http://instituteforfinancialtransparency.com

USA

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Paul M.

Secunda

Phil

Dr. Kara

Tan Bhala

Oren

Kaplan

Nicholas

Morris

Professor of Law and Director, Labor and Employment Law Program Director

Marquette University Law School

www.marquett.edu

USA

Private Capital Ltd

http://www.private-capital.com.hk

Hong Kong

President and Founder

Seven Pillars Institute for Global Finance and Ethics

www.sevenpillarsinstitute.org

USA

Sharing Alpha

www.sharingalpha. com

Israel

University of New South Wales, Sydney, Australia

www.unsw.edu.au

Australia

Adjunct Professor, Faculty of Law

CALL TO ACTION PLEASE! IF YOU WANT MORE TRANSPARENCY ON COSTS & CHARGES IN PENSIONS & INVESTMENTS EMAIL ME YOUR DETAILS AND YOU’LL BE ADDED AS A COSIGNATORY TO THIS IMPORTANT LETTER. BE QUICK! andy.agathangelou@transparencytaskforce.org

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If you would like to have a transparency-related article published in the next edition we’ll need your copy by November 1st | October 2016 | www.transparencytaskforce.org | The Transparency Times

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ARTICLE: PHILIP MILLER

THE IMPORTANCE OF AVOIDING UNJU by Philip Miller, Founder | Pension Focus

“It’s fun to play around...it’s human nature to try to select the right horse...(But) for the average person, I’m more of an indexer...The predictability is so high...For 10, 15, 20 years you’ll be in the 85th percentile of performance. Why would you screw it up? Most of the mutual fund investments I have are index funds, approximately 75%.” These are the words of Charles Schwab, founder of Charles Schwab & Co., Inc., the world’s biggest fund supermarket. It may well be fun to “play around”, if you can afford to. Charles Schwab’s net worth is around $6.5 billion. For most people, however, playing around can have a devastating impact on their standard of living throughout retirement. For a professional financial advice business to play around with their clients’ money is unacceptable. For decades now, many UK financial advice businesses have failed to give due consideration to costs and, even more importantly, the effects of those costs, when making recommendations on long-term investments and pensions. In many cases, this has had a devastating effect on their clients’ investment returns and, consequently, standards of living in retirement. Fur-

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thermore, it amounts to professional negligence, as well as a breach of the suitability rules of successive UK regulators since 1988. In the last 15 years or so, £tens of billions have already been paid in compensation for mis-sold pensions, with profits endowment policies, payment protection insurance (PPI) policies and other missold investments. This is just the tip of the iceberg. Excessive costs on pensions and investments have unjustifiably cost UK savers well in excess of £100 billion. Fund costs have long been proven, reliable predictors of future investment success (low costs = better returns). Numerous independent studies, going back decades, have confirmed this fact. Morningstar is the world’s leading provider of independent fund research. Russell Kinnel, the chair

of their fund ratings committee, said after one of their recent studies “We found that the cheapest funds were at least two to three times more likely to succeed than the priciest funds. Strikingly, our finding held across virtually every asset class and time period we examined.” There are 3 main categories of investment cost for the retail customer: advice, administration and fund management. Typical annual costs for financial advice range from 0.5% per year to 1% per year. Of course, financial advisers have to charge for their services – no reasonable person would disagree with that. But that doesn’t mean they have to recommend the more expensive products. Typical annual costs for the administration of financial products also tend to be in the region of 0.5% to 1% per

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USTIFIABLE FUND COSTS year. Again, nobody would expect providers to offer these products for free. It’s worth noting here, however, that there are flat-fee products available (which charge in the region of £250 per year, no matter the amount invested). Most financial advice businesses recommend products which charge on an “ad-valorem” basis (ie. a percentage fee). On a £250,000 pension pot, £250 equates to just 0.1% per year – a significant saving on the typical ad-valorem charge. Where the biggest cost savings can be made is in fund

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management. Retail funds come in two general categories – index funds and actively-managed funds. Index funds tend to cost less than 0.5% per year and can cost as little as 0.1% per year. Active funds tend to cost at least 2.5% per year (visible plus invisible [trading] costs) and can, for example in the case of complex and opaque “with profits” funds, cost much, much more. Index funds typically aim to track a broad all-market index, such as the FTSE All-Share Index (UK equities)

or the FTSE All-Stocks Gilt Index (UK Government bonds). They do this by simply buying and holding the constituent securities of the index in the same proportions as they make up the index. Active funds typically aim to outperform the index by frequently buying and selling securities to other active buyer and sellers, incurring significant costs as they do so. There can be no doubt that,

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crashes”, both equities and bonds have actually delivered better-than-average returns in the last 25 years. The crashes, of course, make better headlines than the long-term gains in equity and bond markets.

as well as significant extra costs, active funds involve extra risks.

ment”. Surely that’s not a lot to pay to have an expert look after our money?

As Vanguard founder Jack Bogle said “Classic index funds, by definition, basically represent the entire stock market basket, not just a few scattered eggs. Such funds eliminate the risk of individual stocks, and the risk of manager selection, with only stock market risk remaining (which is quite large enough, thank you).”

In fact, that 2% means far more than it may appear on the surface.

*** At this point, a scientific-minded person would be asking the question “Is there any evidence that financial advisers can select active funds that are likely to make up for the extra costs and risks with superior stock selection?” The answer is an emphatic “No”. We’ll come back to this later. *** “Just” 2%? Generally speaking, active funds cost at least 2% per year more than index funds. An extra 2% of investment costs each year may not sound like much, particularly when financial advisers talk about “expert fund manage-

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Usually, when we think about 2%, we think of it as 2/100ths of 100%. In that context, it doesn’t seem like much. When it comes to long-term returns on investments and pensions, however, that’s not the right way to think about 2% of investment costs. In fact, it’s a very dangerous way to think about them. As we will see in the following section, 2% of annual costs represents a significant proportion of the real returns available from retail funds, whether they be equity or bond funds. Real returns in the last 25 years Long-term average nominal returns from UK equities are around 8.5% per year. Longterm average nominal returns from UK bonds are around 6% per year. Over the last 25 years, the figures are 8.7% and 7.7% respectively. Despite well-publicised “financial crises” and “stock market

Despite this beneficial tailwind, the returns achieved by many customers of retail financial advice businesses in the last 25 years have been pitiful. In many cases, customers have received less purchasing power (after inflation is taken into account) than they have paid in. The main reason is unnecessary costs, particularly fund costs. In the last 25 years, after inflation (2.9% per year according to the Bank of England), real annual returns on investments in equities and bonds were 5.8% and 4.8% respectively. (It’s real returns which count, of course. Nominal investment growth of 2.9% per year in the last 25 years would have delivered precisely zero increase in purchasing power). 2% of costs has, therefore, represented around 34% of the real returns on equities and 42% of the real returns on bonds in the last 25 years. These are not insignificant amounts. It doesn’t stop there. Due to the way compounding works, the effect of an extra 2% of costs per year leads to much more than a 34% or 42% shortfall in long term returns. Let’s assume the minimum possible total cost

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of investment (advice plus administration plus fund management) is 1% per year. Now let’s compare real returns in the last 25 years for 1% total costs and 3% total costs (an extra 2%): Equities £10,000 compounded at 4.8% for 25 years grew to £32,287 (1% per year total costs). £10,000 compounded at 2.8% for 25 years grew to £19,944 (3% per year total costs). By adding “just” 2% per year in costs, the real longterm growth of £9,944 was a measly 45% of the £22,287 growth where costs were kept to 1%. Bonds £10,000 compounded at 3.8% for 25 years grew to £25,406 (1% per year total costs) £10,000 compounded at 1.8% for 25 years grew to £15,620 (3% per year total costs) By adding “just” 2% per

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year in costs, the real longterm growth of £5,620 was a woeful 36% of the £15,406 growth where costs are kept to 1%.

It’s important to note here that: · These calculations use simple arithmetic – something every professional financial adviser should have a thorough grasp of. · Although we did not know in 1991 what long-term returns would be on equities and bonds, we did know, for certain, that unless there was an unprecedented combination of future long-term deflation coupled with much-higher-than-average long-term investment returns, 2% per year in costs would represent a very significant proportion of available real returns. · With profits funds have cost customers

way more than 2% per year. We may not have known just how much they would cost in 1991, but the very fact they were so opaque and complex, with inherent conflicts of interest between fund manager and customer, should have made financial advisers avoid them like the plague. · Equity and bond index funds were available to retail and institutional advisers in 1991. · Stakeholder Pensions were introduced in 2001. Charges were capped at 1% per year. The all-important question Given that we know, other things being equal, that 2% per year of investment costs must lead to much lower investment returns, the question we (and financial advisers) must answer is this:

“Is there any evi-

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dence that financial advisers can select, in advance, active funds that are likely to make up for their extra costs and risks with superior stock selection?” As highlighted earlier, the answer is no. The evidence on this is clear and unequivocal. Every serious scientific study conducted shows that, over every meaningful time period, the majority of active funds fail to match the returns of index funds. Over longer periods, the proportion of active “winners” gets smaller and smaller. In the long run, only a handful of active funds even survive, never mind succeed. What’s more, the losing funds lose by nearly twice as much per year, on average, as the winners win.

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The risks of selecting a loser far outweigh the potential benefits of picking a winner. You might think that active funds selected by financial advisers do better than those purchased directly by investors. Think again. A study by a research team led by two Harvard Business School professors found that, between 1996 and 2002, equity funds recommended by advisers returned 2.9% per year on average. Funds purchased directly, meanwhile, returned 6.6% per year. These figures exclude the additional cost of the advice! In a 1993 contest, the New York Times asked 5 respected advisers how they would invest $50,000 in funds over 20 years. The comparative standard would be the returns earned by the Vanguard S&P500 index fund. In the year 2000, seven years later, the New York Times reported the progress so far. The highest return was $105,100. The lowest was $61,816. The average was $88,500. The return earned by the

index fund was $138,750! In mid-2000, the contest was cancelled without notice. A small number of fund managers do deliver better returns than index funds over shorter periods of time. An even smaller number deliver better returns over longer periods of time. However, there is absolutely no evidence, anywhere, that financial advisers can reliably and consistently select those fund managers in advance. Every horse race has a winner, and some horses win multiple races. What’s more, it’s easy to identify past winners. These are not good reasons to bet your life savings on the horses. It gets even worse. Evidence shows that investors in active funds receive poorer money-weighted returns than the time-weighted returns reported by the funds themselves. This is because lots of money tends to flow into funds after short periods of good relative performance, and out of them after short periods of relative poor performance. Many finan-

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cial advisers don’t leave their customers’ money in the same fund for a long period. There is money to be made by moving it elsewhere. One of the most well-known funds of recent decades is Fidelity’s Magellan fund. During its most successful period it was managed by Peter Lynch, who delivered an incredible average annual return of 26.4% per year between 1977 and 1990 (nearly double the S&P500 index return of 13.3% per year). Despite this astounding performance, a study by Fidelity themselves showed that, during Lynch’s tenure, the average investor in the fund (it wasn’t open to the public until 1981) actually trailed the S&P500 index by 2.8% per year. Interestingly, Lynch himself said in 1990 “The public would be better off in an index fund”. A final noteworthy point in this section – most active funds don’t last very long. In one 36 year study, 80% of the original 355 funds went out of existence. The performance tables used by financial advisers are

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usually heavily distorted in favour of active funds by what is called “survivorship bias”. Naturally, they can only compare results of funds that have survived. So, the table might show that, say, 25% of active funds have delivered better returns than an index fund over a particular time period. If all the funds that were in existence at the start of the measurement period are counted, however, the picture looks far worse for active funds. With profits With profits funds deserve a special mention. The long-term effects of their

excessive costs have been truly staggering. It has been estimated that around the turn of the millennium, approximately £400 billion of UK savers’ money was invested in with profits funds. This equates to £20,000 each for 20 million people. With profits funds were very popular with financial advisers throughout the 1990s, mainly due to the typical 7% up-front commissions they paid. If only they were so good to savers. In a decade where a simple, low risk 50% equities/50% bonds portfolio (very similar to the typical with profits portfolio) returned 13% per year before costs*, many

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with profits funds paid annual bonuses way below 10%. Then, when the stock market fell between 2000 and 2002, terminal bonuses disappeared in many cases. *£10,000 would have grown to £33,945. Since 2000, with profits policyholders in general have paid a heavy price for the mismanagement of funds as well as the high commissions and foolish bonuses paid in the 1990s. Those retiring now are far worse off than they would have been with a simple low-cost alternative.

Billions of pounds in redress have quite rightly been paid out on with profits endowment policies. It is high time the same happened for with profits pension policies and with profits investment bonds. When with profits policy

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bonuses are at fund managers’ discretion, instead of directly reflecting the values of the underlying assets, even more layers of complexity and risk are added than with standard “unit-linked” managed funds. Instead of holding a steady asset allocation, with profits funds tended to adjust the proportions of equities and fixed interest they held. This is called “market-timing” and the evidence shows that, more often than not, it does more harm than good. Furthermore, the main selling point of with profits funds – “smoothing” – is unnecessary, given the very long-term nature of pensions, and particularly when a customer is paying in regularly (which has a smoothing effect all of its own – pound-cost averaging). Ultimately, there has been a direct conflict of interests between with profits fund managers (whose job is to maximise the profits of the fund) and investors.

Law and regulation Unlike in the U.S. and other countries, financial advice businesses in the U.K. have, since 1988, operated under a fiduciary duty to act in clients’ best interests. The evidence demonstrates that recommendations of high cost funds class as negligence under tort law, which requires professional advisers to act with “reasonable care and skill”. What’s more, since 29th April 1988, financial services regulation has had rules in place concerning the suitability of retail investments, such as “you must not recommend a packaged product to a retail client if you ought reasonably to be aware of a packaged product which would better meet their needs and circumstances”. There have been notable litigation victories in the U.S. in recent years on excessive and unjustifiable fees on pension plans. Of particular significance is a 9-0 victory in the Supreme Court. Not 5-4, 6-3, 7-2 or

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8-1. 9-0! It is only a matter of time before the same happens here in the U.K. Errors of commission On the surface, the figures in this article may be just numbers on pages. The harsh reality they translate into, though, is that for millions of customers of UK financial advice businesses, excessive, unnecessary and unfair investment costs have led to pensions worth tens (or hundreds) of thousands of pounds less than they should be. This, in turn, means far lower standards of living in retirement than they should have, after decades of working hard and saving. Higher commissions on more expensive funds and financial products may be an explanation of why financial advice businesses Edition #6

have long recommended them. They are not a justification. It’s important to note here that the burden is on financial advisers to justify the high costs, not on the customer to demonstrate why they are unjustified. This is exactly why, in 2001, the rule known as Regulatory Update 64 was introduced alongside low-cost Stakeholder Pensions.* *RU64 states that an adviser, when recommending a pension that is not a stakeholder pension, must explain to the customer in writing why the recommended policy is “at least as suitable”. The facts and the evidence are clear and unambiguous. In the majority of cases, the excessive costs of active funds cannot be justified. Millions of personal pensions, investment bonds,

with profits funds and other high cost products have been unjustly recommended to UK customers in the last 25 years. Millions of customers of UK financial advice businesses are entitled to compensation (totalling £tens of billions) on their pensions and longterm investments. This compensation can make a meaningful difference to their lives and livelihoods in retirement. From a macro-economic perspective, it would also provide a much-needed economic stimulus, similar to quantitative easing. For those who worry that the UK economy relies to a large extent on the financial services sector, consider these two important points: 1. Active investment management adds no value whatsoever to the economy; 2. There’s much more to the financial services

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industry than investment management (it’s the insurance capital of the world - £60 billion in premiums in 2013 – and has the largest share of the $1,000 trillion per year in currency trading on the FX market). Thousands of hard-working and intelligent people are currently wasting their talents in active investment management, to the great detriment of national GDP. In aggregate, they only make money at the expense of millions of savers and investors across the country. In the long-term, having these people employed in productive endeavours will add to, not subtract from, the prosperity of the UK. A useful parallel is farming in the U.S. In 1900, 11 million of the U.S.’s 28 million workforce (40%) were employed in farming. Then, as now, the leading crop was corn. At that time, 90 million acres was devoted to its production and output per acre was 30 bushels per year – a total annual output

of 2.7 billion bushels. Fast forward to the present day and while only 3 million are employed in farming, (2% of the 158-million-person workforce), between 13 and 14 billion bushels per year are produced (more than 150 bushels for each of the 85 million acres currently devoted to corn production). Innovations such as the tractor have allowed tens of millions of people to utilise their talents and efforts in other endeavours, a reallocation of human resources that enables Americans of today to enjoy huge quantities of non-farm goods and services they would otherwise lack. If a post-Brexit UK is to be truly competitive, it cannot afford to have so many people tied up in unproductive labours. We should strive to be a leader in rational, evidence-based investing. Playing “a round” In 1924 the first open-ended mutual fund was launched. This was undoubtedly an

important innovation, but arguably the greatest financial innovation of the 20th century was the index fund. $15,000 invested in Vanguard’s first retail index fund at its launch in 1976 is now worth over $970,000. Managers like Dimensional, with indices constructed as a result of rigorous scientific research conducted by leading academics, get even better results. Active managers may like to tell us that investing in index funds means “settling for average”, but that’s the wrong way to look at it. In the long run, hardly any active funds keep pace with an index fund. Think of investing like golf. As Burton Malkiel said, an index fund allows you to “play every round at par”. There are over 25 million American golfers registered with the USGA. Less than 1% play their average round at par. Incidentally, while over 40% of U.S. equity and bond investments are now indexed, in the U.K. we are way behind that figure. There is much room for progress!

To conclude, for most investors there is simply no justification for costly, complex and opaque active management. Most people cannot afford to play around with their investments. They 22

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certainly can’t afford to pay professionals to play around with them on their behalf. It all boils down to one simple fact: if those responsible for investing other people’s money are going to expose their clients to costs over and

above those that are absolutely necessary, they must ensure there is evidence to show those costs are justifiable.

Phil is speaking at our Transparency Symposium on 16th November, in London

Phil is the founder of Pension Focus, a compensation claims management business based in West Yorkshire. He has worked in financial services for 17 years, both as a retail adviser and in various compliance roles. Phil believes passionately in raising awareness about the effects of excessive and unjustified costs on pensions and long-term investments.

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ARTICLE: LUIS RIVERA

TRANSPARENCY IN FINANCIAL SERVIC - A NAIVE ASPIRATION? by Luis Rivera, Co-Founder & CEO | ETFmatic.com

Prior to building ETFmatic I had never worked in Financial Services. My experience included many years as a Management Consultant for Private Equity and Multinational companies, so I was no stranger to how things work in the sort of companies investors bet their savings on. Our Industry is Broken The Financial Services Industry has, step by step, earned the awful reputation it deserves. I don’t find it acceptable that so many retail customers pay half of their returns to fees simply because most of the innovation the industry has sought has been around how to screw their clients.

But my relationship with the Financial Services industry was shaped by my horrible experiences as a customer: paying endless fees that seemed to appear out of nowhere and how I was treated by as-unpleasant-as-they-come support teams. And above all, the lack of the kind of sensible approach towards Portfolio

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Management that is taught in Business Schools but is unavailable to retail customers because key financial concepts are not included in our educational systems. All of this is further made worse by the reach of unsustainable marketing budgets in an industry where change is long overdue.

Too much of what happens every day makes good professionals feel ashamed of “the best they can do for their clients” and loops regulators into a perpetual game of cat & mouse against companies suffering market forces that misalign them with their customers. Lack of transparency is a key enabler of all this nonsense. In the United Kingdom we are lucky to benefit from a data driven Regulator that seeks to im-

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CES

prove customer outcomes by testing new models. The definition of insanity is doing the same thing over and over again, but expecting different results, and as a customer, it is reassuring that the Regulator understands that change is needed. Having been born in a country where combined fees above 3% are widespread and grandmothers are sold junk bonds by their bankers, when initiatives like RDR1 don’t deliver perfect results I tend to think they achieved partial validation of the type of hypotheses that should be tested continuously. But most Europeans suffer less modern Regulators, and the Brexit referendum has brought more questions than answers. Beacons of light Cross national efforts like the Transparency Task Force are needed to help benchmark approaches and results. Which is why we have joined the task to develop an international transparency index that will include, amongst others, data from the 17 countries where we offer our services.

a key catalyst for change. Many Finance Professionals have asked me over the last two years how we’ve managed to deliver such an innovative approach starting as a three-person team. Most aren’t aware the number of countries our services are available in is higher than our current headcount. Or that we have not lost a single customer since we opened for business.

over 40 shareholders that represent 20% of our issued share capital, most of which are finance executives with extensive investment experience, have been our first customers. Busy professionals across Europe are now our focus. And because we fly with As a startup we don’t face the Easyjet, £50 Million under manlegacy costs or inertia of incum- agement is enough to keep the bents. We are not burdened by lights on. potential cannibalization of margins or switching costs when the Changing the Industry one end result can be improved for customer at a time our customers. So what are we doing differently? Building our Platform within an es● We have developed tablished Bank or Asset Manager a full regulatory and would have taken three times as technology stack long and cost ten times as much, that enables us to assuming a change in corporate manage bespoke structure or “strategic priorities” investment portfohadn’t shut us down halfway. The

Yet for customers to experience something better it has to be built and presented to them. Improvements need to be sustainable and measured objectively against the status quo. As an entrepreneur and investor, I’ve learnt transparency is

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lios for each of our clients without additional overhead. ● Our business model is based on removing layers of unnecessary intermediaries to reduce costs and add independence. We are not an ETF issuer wrapping funds in an app or a platform driven by commissions.

● We have published a detailed whitepaper describing our approach that has benefited from several rounds of peer review. ● Our Platform is flexible enough to implement long term Portfolio strategies from any author, we can even implement monthly instructions from your advisor to update your Asset Allocation.

● We charge a small monthly fee based on assets under management; it’s simple to calculate, it removes conflict of interest (e.g. trading fees) and we include comparison tables. ● Our terms of service are less than 16 pages long, too short to hide clauses customers wouldn’t like. ● We allow clients to “try before they buy” by providing a free simulation mode. 10,000 customers have already downloaded our App. You can open an account with your iPhone, Android or Windows device in under 5 minutes if you want to experience how we believe investing should be done: simple, cost-effective and transparent.

Luis Rivera is Co-founder and CEO at ETFmatic.com, a fintech startup led by a team of experienced entrepreneurs that believe we all deserve a simple and cost effective way to put our savings to work through highly diversified investments in low cost index funds. His former startup experience includes launching Okuri Ventures, Tetuan Valley and Startupbootcamp amongst others. Previous professional roles include 8 years as a Management Consultant, advising multinationals and Private Equity firms in Business Development projects and financial transactions at Monitor Group, PricewaterhouseCoopers and IBM. Luis has mentored hundreds of entrepreneurs at leading European Accelerators, like Tetuan Valley (Madrid), IBM Smartcamp (Barcelona & London), Seedcamp (Barcelona & Lisbon) Gamma Rebels (Warsaw) and StartupHighway (Vilnius), as well as designed and conducted various training programs for entrepreneurs and investors in Universities, Business School and Events. His education includes an MBA from INSEAD  (Fontainebleau). a Bachelor of Science in International Business from ICADE (Madrid), CBS (Copenhagen) and McGill (Montreal), and more recently, the CISI Investment Advice certificate in UK Regulation & Professional Integrity. For further information please visit http://luisriverag.com

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DON’T MISS THIS!

WE HAVE ANOTHER GREAT LINE-UP OF SPEAKERS: Daniel Godfrey - Co-Founder, The People’s Trust John Moret - Chair of Investor in Customers & Principal of MoretoSIPPs Julius Pursaill - Independent Governance Consultant & NED of Byhiras Trust Adam French - Co-Founder & MD of Scalable Capital Philip Miller - Founder of Pension Focus

The event will include discussions and debates on the key transparency-related issues impacting the market and consumers, particularly on the very hot topic of costs disclosure. Where is it? Dimensional Fund Advisors, 20 Triton Street, Regent’s Place, London When is it? Wednesday 16th November, 10:30 registration for an 11:00 start, to 17:00

To book click

HERE!

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ARTICLE: Daniel Godfrey

INTRODUCING - THE PEOPLE’S TRUST – YOU CAN HELP GET US UP AND RUN by Daniel Godfrey, Co-Founder | The People’s Trust

When I was Chief Executive of the Investment Association, the trade body that represents the UK’s £6 trillion investment management industry I worked with many people and firms who were committed to improving investment and the operation of capital markets. But I saw how strong the systemic pressures are and how, despite widespread desire for change, radical reform is rebuffed. I saw first-hand how, if change was to happen, it would need a fresh approach and have been supported by many people and firms in the industry who share that purpose. That’s how The People’s Trust was conceived The People’s Trust is aiming to make investment work better for everyone. It will be dedicated to the interests of its customers, to the long-term future of the companies it will invest in and to its impact on the economy and society. The People’s Trust has a clear purpose: better investment returns for you and a better impact on society. And it has a clear strat-

egy: long-term investment in companies and positive impact on those companies so that they deliver better long-term investment returns and better outcomes for their employees, the environment and the economy. It’s a new and different kind of investment fund – it’ll be 100% owned by its customers and it aims to be accessible to everyone. - The People’s Trust will free up our investment managers

to think long term – our investment objective is to get the best possible total returns over seven-year periods. And we’ll encourage the companies we invest in to think long-term too. By doing that, we believe that we’ll be able to deliver better returns over the long-periods of time that match your needs and objectives - We’ll invest on your behalf in companies that have the strategies and resources to deliver sustainable, long-term growth. We will encourage companies to innovate, invest in their people, pay their taxes, and protect the environment. With the People’s Trust backing them long term, those companies should be able to deliver better returns for you, better growth for the economy and better jobs for their people. - The People’s Trust will also improve lives directly and im-

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T NNING mediately, by using 1% of the fund to invest in charities and community interest companies that have a direct social impact. This is not charity; we expect a modest return on these loans – but you’ll know this money’s being used for good. - You’ll be able to put your money, from as little as £10 a week, into the fund by buying People’s Trust shares. This means you, along with every other customer, will become a shareholder, an owner with a right to share in the fund’s profits and a voice in how it’s run - The People’s Trust will be 100% owned by its customers, and it will put your interests first every time

- As we grow, there’ll be economies of scale – bringing down costs. And because you are our shareholders, the benefit of all these savings will belong to you and nobody else As part of the People’s Trust, you’re powerful When you invest in the People’s Trust, we buy stakes in companies around the world on your behalf. Together, we have more power than you may realise. We seek to have a positive impact on how the companies we invest in use your money. We can hold their executives to account, and even seek to require them to change the way they behave if we need to. By do-

ing that, we’ll make investing work for you. We’ll free fund managers and companies from the shackles of short-termism. We’ll help to make our society more prosperous, more sustainable and more equal. Become a Founder to support our development and let’s make investment better The People’s Trust will be independent of any commercial organisation. It will be 100% owned by its customers since they will own

- Employees of The People’s Trust will be paid a straight salary, but no bonus – removing any unintended incentives for them to do something that could damage your interests. In addition, our employees will be paid part of their salary in shares of the People’s Trust, which they’ll have to hold for at least seven years. That means their interests will always be perfectly aligned with yours - Total costs will be crystal clear, so you’ll always know what you’ve paid for the returns you’re getting Edition #6

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investment managers capable of succeeding in delivering The People’s Trust objectives in a way that is consistent with its values. First State Investments and Orbis Investments are working with The People’s Trust with the intention of becoming part of the investment management team. It is anticipated that this will comprise of between five to ten firms initially, with additional managers being appointed if managers reach pre-determined capacity limits to avoid diluting returns. 100% of the shares. As an independent investment trust it is ensuring that it preserves that independence by launching under its own resources, rather than being dependent on any investment manager that would have its own commercial interests and motivations. This is why The People’s Trust is seeking to raise at least £100,000 from Founders who want join in with backing for its development costs up to the IPO. This would cover print, design, web and app development and necessary regulatory or listing fees. The People’s Trust is seeking Founders to help get it up and running. For £20 anyone can become a Founder, backing the development of this new

initiative. If this initiative is successful, Founders will be offered a discount to the public offer price when The People’s Trust is launched in the first half of 2017. If the initiative does not go forwards, Founders will receive refunds less any unavoidable costs incurred in the financial transfers.

Big Issue Invest, the Social Impact investment arm of The Big Issue is working with The People’s Trust with the intention of them managing our social impact investments. City law firm, Freshfields, have been providing advice and will continue to advise through to the successful launch of The People’s Trust.

Who we are Many people and firms within the investment sector, who share these objectives have come together to work with me on the creation of The People’s Trust. Global investment consultancy, Willis Towers Watson, are acting as investment adviser. They are advising on the selection of and negotiation with

Daniel is speaking at our Transparency Symposium on 16th November, in London

For most of the last twenty years Daniel has held CEO roles at two trade associations. Firstly as Director General of the Association of Investment Companies for eleven years and then, for three years, he was CEO of the Investment Association the trade body for the UK’s £5.5 trillion investment management sector. He is currently a Non-Executive Director of Big Issue Invest Fund Management, the Investor Forum and the Ethical Capitalism Group. He is now co-Founder at The People’s Trust.

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ABOUT A WHOLE NEW TASK FORCE!

Launch meeeting of

The Technology Task Force has it’s launch meeting on 2nd November, in London. Get in touch if you’d like to know more. Here are the basics: In the last 6 years I’ve had the fortune to be involved with the Association of Member Nominated Trustees, Pensions BIB, Friends of Automatic Enrolment and the Transparency Task Force.

reduce price, drive up value, improve engagement & understanding, improve competition, improve trustworthiness, improve market confidence and the general optimisation of consumer outcomes.

I think I’ve lerned a lot whilst being the first to admit that I have much more to learn.

Technology is also a ‘Mega Driver’, for it can positively impact operating costs, pricing, value for money, user experience, reliability, data security and the general optimisation of consumer outcomes.

In particular, I’ve learned that if like-minded people commit to dealing with problems that affect them all, great progress can be made in a relatively short period of time. And that even head-to-head competitors can be encouraged to take a collaborative, constructive and collegiate position with each other when it makes good business sense to do so.

It’s perfectly obvious that Fintech is going to, in effect, carry out a strategic overhaul

on the entire workings of the financial services market over the next ten years. We’re in for a great deal of change; ultimately I believe almost all of that change will (or at least should) be good. It is often said the financial services sector has been slow to fully embrace the immense power of technology, when compared to other sectors and I believe that to be true. Cynically-minded people suggest that part of the problem is that the ‘old guard’ in the in-

I think I’ve also learned that there are some drivers for change that are extremely powerful. I think of them as “Mega-Drivers” and I would categorise them as being drivers for change that are able to impact market behaviour in massive ways, both directly and indirectly. Transparency is a ‘Mega Driver. It has the capacity to positively impact culture, remove unrewarded complexity, Edition #6

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dustry would rather see things stay pretty much as they are because they are heavily invested in the ‘status quo’. They have big, old legacy systems that are hard and slow to change. As a consequence, they are less able to embrace the very latest technologies, while their newer and nimbler competitors can build their entire propositions around Fintech. In general terms, for the Transparency Task Force the ‘mission’ is to drive up the levels of transparency and with the Technology Task Force the mission is to drive up the rate at which Newtech replaces Oldtech. What unites them, and what makes it possible for them to

work side-by side is that they are both designed to optimise consumer outcomes.

these organisations please get in touch ASAP:

And because of that ‘common purpose’ they can each be considered an axis on this chart, which is a crude attempt to provide a high-level overview of the relationship between the two Task Forces.

Fund Investors - AVIVA - Barnett Waddingham - Capita - Cognitive Finance - ETFmatic - Ford - Husky Finance - Intuit - PASA - Pension PlayPen - REBA Media - REBA Media - Sanctum Software - SBC Systems - Scalable Capital - Scottish Widows - Smart Pension - Software for People - Staffcare - SystemSync

In essence, what we’ll be trying to do is to move the market to the top right hand corner as quickly as possible, working collaboratively to identify the things holding back swift progress - there are many to choose from! We have limited places available at the inaugural meeting but if you’d like to enquire about attending alongside

- Association of Professional

CALL TO ACTION PLEASE!

IF YOU WANT TO ENQUIRE ABOUT ATTENDING THE INAUGURAL MEETING OF THE TECHNOLOGY TASK FORCE PLEASE EMAIL ME THROUGH: andy.agathangelou@technologytaskforce.net 32

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PRESS RELEASE FROM

Andy Agathangelou, Founding Chair of the Transparency Task Force has launched another collaborative community, the Technology Task Force. The new community is for technology thought leaders in the financial services space that want to drive up the market’s readiness to adopt the transformational technologies they are making available. Agathangelou explains: “The financial services sector is over-ripe for digital disruption. We’re going to be seeing the rapid take-up of a long list of innovations at the ‘Fintech Frontier’ including Block Chain, APIs, AI, Data Integration & Automation, Distributed Ledgers, Cyrpto/Digital Currencies, Robo Advice & Cyber Guiders, Reg. Tech, Big Data, Anti-Scamming, Geo-Mobile Apps, Biometric Authentication, Wearable Tech, ID Verification, Gamification, Digital Signatures, Automated Self Service, Automated Wealth Optimisation, Voice Recognition, Chatbots, Pensions & Benefits Dashboards, Interoperability Enhancement and so on and so forth. There are some fantastic companies around with first class propositions. They want to make full use of the tech power at their disposal but they are rather like super-quick Formula 1 cars having to race on circuits with pot-holes, speed bumps and slow-moving traffic all over the place - they simply can’t perform to their full potential, and that’s a frustration for them. The Technology Task Force will have several functions, to include: · Bringing the right people together · Facilitating the sharing of insights and opportunities · Defining the barriers to progress that are adversely impacting members · Carefully crafting the common objectives that members want to achieve · Building consensus on how to best achieve those objectives · Implementing the agreed strategy and project-managing through to completion Of all these, ‘bringing the right people together’ is the most important; if we do that bit well the rest will be pretty straightforward. We’re actively seeking technology thought leaders who recognise the commercial wisdom in collaborating with their progressively-minded ‘next generation’ peers; to tackle whatever is slowing them up, together. Whilst the raison d’être for the Technology Task Force will be to help its members achieve their commercial objectives through better collaboration, there will be a social purpose too because the ultimate beneficiaries of the work done will be the consumer, whose user experience will shift more quickly from clunkiness to seamlessness and they will also enjoy better value for money too; that’s because nothing strips out operating costs better than tech, and in highly competitive price-sensitive markets, it makes sense to pass supply-sides savings on to the consumer. That’s important, because keen pricing made possible through tech-led efficiencies will be a key determinant of who gets what market share moving forward. A large market share today does not guarantee a large market share tomorrow; in fact, there’s an argument that because of the drag caused by legacy systems, the opposite might be true. Edition #6

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The Technology Task Force is a positive development for the overall health and efficiency of the market. My experience leading the Friends of the Association of Member Nominated Trustees, Friends of Automatic Enrolment, Pensions BIB (the pan-industry group that developed PAPDIS, the Pensions and Payroll Data Interface Standard) and the Transparency Task Force gives me great confidence that bringing like-minded people together and carefully crafting common goals and objectives leads to a ‘collaboration catalyst’ through which great progress can be made, quickly. The immediate focus is on having a successful inaugural meeting, where potential Founder Members will help to shape our protocols, priorities and policies. The inaugural meeting is on the afternoon of Wednesday 2nd November, in London; interested parties should connect through andy.agathangelou@technologytaskforce.net or +44 (0) 7501 460308”. Comments from thought leaders in the financial services tech space:  Margaret Snowdon OBE, Chair of PASA: “Pensions, and especially administration, should be on the front foot of technology and not the back foot. Digital solutions can help consumers and providers make engagement with savings easier, simpler and more trustworthy. We need to ensure that pensions in this country are sustainable, and technology will help us do this. The Technology Task Force is a great way to share good practice and test out ideas and the time is right, with the UK leading the way on Fin Tech.”  Clara Durodié, Founding Partner, Cognitive Finance Group: “It is estimated that in the past decade, the volume of data accumulated by an asset management firm has gone up by sixty-five-fold. Such a huge volume of unstructured and disconnected data inhibits business growth, hinders investor-centric services and clutters investment decisions. Artificial Intelligence is the natural progression from here. We are on the cusp of shifting from digital to cognitive to enable us to interrogate huge volume of data, to get meaningful answers which will assist us with making better decisions and be more productive. The Technology Task Force launch couldn’t be more timely and, coupled with Andy’s extraordinary work with Transparency Task Force, couldn’t be more beneficial to investors.”  James Markham, Director at SBC Systems (UK) Ltd: “It is essential that the pension and reward industry tackle its endemic process inefficiencies to cut costs and benefit consumer and business alike. Building on the success of the Friends of AE and the Transparency Task Force, the Technology Task Force is an initiative we should all support to provide the coordination and drive to do so.”  Phil Hollingdale, Founder of Staffcare & investor in disruptive technology businesses: “Technology pace of change will be explosive over the next 10 - 20 years and employee benefit professionals need to be aware and ready to embrace it or at least anticipate the potential impact. The sharing economy is one of the biggest current technology trends and with that in mind we can all benefit from sharing knowledge and ideas through the Technology Task Force.”  Will Lovegrove, CEO at SystemSync Solutions: “The past few years have seen unprecedented collaboration between various industries: Friends of AE, Pensions BIB and The Transparency Task Force. The three things that underpin the success of these collaborations are: Andy Agathangelou, a problem to solve and technology solutions. Therefore, it makes obvious sense to have a Technology Task Force led by Andy to solve a range of problems in a collaborative and disruptive manner.”  Gillian Hepburn, Director at DISCUS Ltd: “Effective use of technology has the potential to revolutionise financial services and offers new opportunities for both financial advisers and direct to customer companies to reach new clients. If technology can educate and raise awareness of the need for people to save and protect themselves and their families plus facilitate the ability for consumers to do this easily, then the industry should collaborate to

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support the Technology Task Force.”  Adam French, Co-founder & Managing Director, Scalable Capital: “Technology is at the heart of many of the new innovative services being launched within finance at the moment. Services which have been built from the ground-up with the consumer at the core of the proposition. As a Fintech company, we are very excited to see Andy and his team build on the work they have done in the area of transparency with a focus on technology.”  Andy Green, Technology Sales & Development, Capita Employee Benefits: “Following other successful initiatives, striving for solutions to some of the key issues facing our industry, I fully support the Technology Task Force. In order to improve engagement and education within both employee benefits and pensions it is imperative that we embrace digital technologies, research and adopt new disruptive technologies and ensure that employees and scheme members enjoy the same positive experience that they have with retail and banks online. The millennial generation need communication and tools that are relevant to them in order to ensure that the value of employee benefits is correctly understood.”  Philip Brown, Head of Policy LV= “Technology has a hugely important place in delivering better, more efficient financial solutions to consumers. Affordable, accessible advice is now a reality that can help solve the advice gap for arguably one of the most important financial decisions people make - retirement income planning. Bringing together like-minded thought leaders through the Technology Task Force is great idea.”  Tom Nall, Director of Workplace Solutions, SimplyBiz Group: “This is timely. We’re at a point in time where technology and its integration will define success - from government initiatives right through to the commercial world, we need greater collaboration to drive better consumer outcomes. I’m looking forward to supporting through the SimplyBiz Group.”  Nick Keppel-Palmer, Head of Strategy, Husky Finance: “We are very interested in using technology to transform the long term savings market, particularly in creating radical efficiencies that benefit the mass of individuals coming into saving, now and in the future, and are therefore keen to be involved in this kind of collaborative community.”  Andrew Evans, CEO, Smart Pension: “Technology is key to unlock engagement for members of pension schemes. Historically, the industry has been behind the curve in scale, using legacy systems & relying on regulation and franchise to provide a range of services. Members will see rapid improvement in all areas of pension delivery over the coming years, as providers start the journey of catching up with the opportunities within technology. The Transparency Task Force takes a really positive step in this direction of travel and is to be supported.”  Jonathan Hawkins, Client Development Manager, ITM Solutions Ltd: “FS technology has often been slower to adapt in terms of interoperability, choice and having an end consumer focus. It’s a complex area that in turn breeds complex solutions. The chances for collaboration and standards, whilst increasing, have been rare or limited in scope. There’s a huge opportunity for the industry to innovate and adopt emerging technologies as new standards, but the most sensible way of doing this is through unified approaches and working together to ensure wide ranging views and experience are input into forward-looking decisions. The Technology Task Force will be excellently placed to achieve this. I look forward to bringing my experience and views as well as those of ITM, who have for many years connected and migrated between systems, to the Technology Task Force.”

PLEASE HELP TO SPREAD THE WORD! andy.agathangelou@technologytaskforce.net Edition #6

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ARTICLE: John McCreadie

TRANSPARENCY AND REGULATION IN

By John McCreadie, Head of Sales (UK) | Momentum Pe

Transparency in the retirement planning sector is no longer a nice-to-have; it is a must-have. We are all aware of the problems that have beset the financial industry in recent years. The best way to ensure the problems do not return is to do all we can to help the pensions industry remain open to scrutiny at all times, with no hidden fees and complete transparency among providers. However, Momentum Pensions’ own research has revealed a concerning trend within the SIPP sector which illustrates there is still a lot of work to be done. A lack of clarity with fees Out study highlights that well over half (55%) of advisers say they have experienced instances

where a SIPP provider has levied charges they were not expecting, leaving them “shocked”. It also reveals that nearly

three quarters of advisers (74%) admit they find it difficult to easily compare between the charging structures of different SIPP providers. The concerns about charging and being able to compare effectively are uniting advisers in support for further Financial Conduct Authority action – 94% of advisers who responded say they would back action to require all SIPP providers to publish charging structures in a standard format. When it comes to related transparency and regulatory issues, further research shows that 77% of advisers are looking for providers that have strong corporate governance systems in place, 64% want more clarity from the FCA or HMRC on non-standard investments, and 42%

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N THE SIPP INDUSTRY

ensions want specific clarity on peerto-peer investments. The message is transparently clear. Independent financial advisers pride themselves on providing a clear, transparent service to their clients. We, as providers, need to ensure they can expect the same service from us. Interest-turn A proposal by the FCA in CP15/30 states that SIPP providers should be obliged to disclose retained interest charges in projections and reduction in yield calculations, which in turn follows heated debate about the lack of transparency and the overall legitimacy of taking this interest turn. Momentum Pensions’ own recent research, carried out in the run-up to the capital adequacy deadline date of September 1st, showed that 23% of advisers want a total ban on the practice, compared to just 13% when we carried out the same research six months earlier. Edition #6

In addition, 66% of advisers feel interest turn should be disclosed in line with FCA guidance to enable comparisons to be made. In line with these advisers, many SIPP operators want it banned too, feeling that taking this additional income cannot be justified in any way. However, there are some providers who don’t see anything wrong with taking this money, as long as the trail is properly disclosed and doesn’t disadvantage the client beyond the standard terms they could have obtained directly. However – for the good of a completely transparent industry, with no room for confusion whatsoever, providers need to take a

specific stance and stick to it. With so many advisers against the practice, it is clear what the industry as a whole thinks about it. The scale of the issue is a large one. Last year’s FCA consultation paper on pensions said the SIPP industry earns around £60m a year from retained interest charges – which are not being included in projections, effects of charges tables and reductions in yields. Some research papers have even gone as far as claiming that SIPP providers are relying so heavily

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

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on the money they make from retained interest charges that they will actually fold if the practice is stopped. On average, 10% to 12% of SIPP assets are held in cash accounts, according to the FCA. In conclusion Transparency, regulation and strong governance are by-words that should characterise the SIPP sector. Quite simply, advisers should be 100 per cent sure that providers are giving them the tools they can work with to give their end

client a fully transparent service. Our research has revealed a number of concerning facts, showing that the industry has some way to go to prove it can deliver such a service to advisers.

Those providers who fall short need to make changes now – not just for their own reputation and standing, but for the good of the SIPP industry as a whole.

London, 2016 – Momentum Pensions, the growing pension specialist and SIPP provider, has appointed John McCreadie as Head of Sales (UK) based in the Midlands. John will promote Momentum Pensions’ expanding SIPP proposition to UK advisers. In addition, he will offer technical guidance and support to advisers with international clients. John has over 30 years’ experience in financial services in the UK and joins from Hornbuckle, where he held a similar role. Prior to this, John held roles at Friends Life, Scottish Widows, and Johnson Fleming. He has also worked at Winterthur, Scottish Equitable, Britannia Life and Sun Alliance Life during his career. Stewart Davies, Group CEO, Momentum Pensions, said: “John has an impressive pedigree in the financial services sector and his deep experience in the adviser market complements our intermediary-focused proposition. Advisers play a central role to Momentum’s fast-track growth and we are committed to working in partnership with them to ensure they have the insight and tools needed to provide the best service possible to their clients. “We are looking forward to working alongside John and supporting him as he plays a key role in our continued development.” John McCreadie, Head of Sales (UK), Momentum Pensions, said: “Momentum has recently launched a new SIPP product which complements its existing pensions proposition perfectly. Advisers are increasingly looking for bespoke retirement options that meet their clients’ very specific needs and I am looking forward to working alongside them to help provide them with such solutions.” Momentum Pensions recently launched a new UK SIPP specifically for UK Residents, offering the option to switch for free within a multi-jurisdictional proposition, the first UK SIPP to offer such a feature. It launched with a wide variety of Discretionary Fund Manager (DFM) investment partners in place, and plans to add more as the product evolves.

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The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


DON’T MISS THIS!

WE HAVE ANOTHER GREAT LINE-UP OF SPEAKERS: Daniel Godfrey - Co-Founder, The People’s Trust John Moret - Chair of Investor in Customers & Principal of MoretoSIPPs Julius Pursaill - Independent Governance Consultant & NED of Byhiras Trust Adam French - Co-Founder & MD of Scalable Capital Philip Miller - Founder of Pension Focus

The event will include discussions and debates on the key transparency-related issues impacting the market and consumers, particularly on the very hot topic of costs disclosure. Where is it? Dimensional Fund Advisors, 20 Triton Street, Regent’s Place, London When is it? Wednesday 16th November, 10:30 registration for an 11:00 start, to 17:00

To book click

HERE!

Edition #6

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

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ARTICLE: Oren Kaplan

ENCOURAGING TRANSPARENCY IN TH By Oren Kaplan, Co-Founder, | SharingAlpha

What if there was an internet site where Fund Selectors, Investment Advisors and end investors could share their opinions and insights regarding funds? What if that platform was open and free to use? Well, there is no need to use your imagination since such a tool already exists and it’s called SharingAlpha (www.SharingAlpha.com). SharingAlpha is a user generated fund ratings and model portfolios platform that has become the world’s largest fund rating agency in terms of the number of Fund Analysts contributing to its ratings. SharingAlpha rates funds based on the average rating provided by Fund Selectors worldwide. Apart from being able to create a better fund rating, SharingAlpha is also able to rank the individual raters in terms of their talent in selecting funds. Their fund selection track record enables the raters to test their analysis, and if they choose the raters are able to present their proven track record to existing and potential clients. Based on the above, SharingAlpha is able to publish a list

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of both top rated funds and top ranked Fund Selectors. An additional feature enables Investment Advisors to build virtual Fund of Funds and in turn SharingAlpha ranks them based on their performance not only as Fund Selectors but also as Asset Allocators. The use of the website is totally free and covers over 100k funds listed in 110 countries. Our vision is to offer the investment community a better way to select winning funds and at the same time to offer Fund Selectors and Investment Advisors the option of building their own proven long term track record. It’s about time that funds are rated on the basis of parameters that have been proven to work and Fund Selectors and Investment Advisors will be

judged according to their ability to add value to investors. To sum up, here are 2 ways in which SharingAlpha is improving transparency in this very closed industry: - Funds: Fund providers who are trying to sell their product give you plenty of publicly accessible information but that is marketing material and definitely not neutral. Standard rating agencies give us a more neutral view of funds but with such a large number of funds most of their information is quantitative. Only on SharingAlpha can you find information that is qualitative taking into account parameters such as the latest impression a Fund Selector has on the Fund Managers motivation, or in other words, whether the Fund Manager is truly dedicated to achieving Alpha or are there any issues that are interfering in achieving that goal. This insight that is received through a wide network of market participants places more information at investors fingertips.

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


HE FUND INDUSTRY - Advisors: All Fund Selectors and Investment Advisors claim that they have a way of helping investors either with selecting winning funds or with deciding on the best mix between them, however none of them are able to prove that it’s worth while listening to them. SharingAlpha allows these market professionals to present a clear and measurable track record turning the task of selecting an Advisor to a much more transparent and clear process. You are welcome to visit www.SharingAlpha.com in order to start enjoying the fruits of this revolutionary platform.

An Israeli based FinTech company founded by two brothers. Oren Kaplan has over 20 years of experience in the Financial Industry and he covers the ‘Fin’ part. Yuval Kaplan, now aged 46, has been writing code since the age of 13 and complements the ‘Tech’ part. Edition #6

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

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ARTICLE: David Weeks

THE AMNT AND COSTS DISCLOSURE

By David Weeks, Co-Chair | Association of Member Nom

My arrticle is in three parts: - About the AMNT; - Description of our contribution to the dialogue on costs and charges; - A case history that crystallises our position. First, who are the AMNT? The Association of Member Nominated Trustees comprises 650 in number. Together, we represent 480 occupational pension schemes, with combined assets under management of £650 billion. That is, broadly, one third of the UK occupational pension sector. We cover schemes of all sizes: from £48 billion at the largest, down to £6 million at the smallest. Janice Turner and I are the co-chairs.

In my Transparency Statemet provided to the Transparency Task Force I articulate that “I believe there ought to be higher levels of transparency in financial services because, in times ahead, we must encourage people to save more in their working lives. We want them to be able to fund themselves for increasing numbers of retirement years. To do this, we must deliver, and be seen to deliver, prudent and open costs and charges.”

What is our contribution to the dialogue on costs and charges?

We pay tribute to those who have contributed to the debate about costs and

charges. I pinpoint four main groups: • First, there are the prophets: Chris Sier is the leader. He started the interest. He is the John the Baptist of the campaign for transparency in costs and charges • Next are the popularisers, who whipped up the momentum. Andy Agathangelou is a good example. • Then there are the politicians, who have ensured support from both main parties. In particular: Tom Tugendhat MP and Angela Rayner MP. • My fourth group are the practitioners, who apply the principles to the work of individual pension schemes. That is our role: the trustees; in particular, the member nominated trustees. How do we see our role as the practitioners? Louise Sivyer of The Pensions Regulator in her talk at the Transparency Symposium

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minated

Trustees

on 12th October set out our guidelines: • One: “Trustees should be tenacious in obtaining information they need with regard to costs” • Two: “Transaction costs, incurred as a result of buying, selling, lending or borrowing investments are a particular area where lack of transparency is a problem for trustees”. • Three: “There is no single approach to an assessment of value.” • And four: Trustees should adopt the role of a: “demanding consumer” The Association of Member Nominated Trustees covers the topic at our quarterly conferences. One exemplar that greatly attracted our members is that of the Railpen pension scheme.

engaged a forensic accountant from Darlington to dig it out. She found that they had underestimated the level of costs by a factor of four. In reality, costs were not £70 million. They turned out to be £280 million: four times as much as they thought. They set a target: cut this figure by £100 million a year. They set a programme to achieve this. Three months later, AMNT invited the forensic accountant from Darlington to report on the results. Vicky Bell is her name. • “What gets measured can be managed” was her motto. Continued improvement involves three distinct stages. First, discovery: dig out the total costs, and dig out the

detail. Then measure the numbers. Then monitor. Dig out the hidden costs, as well as the direct costs. The hidden costs are probably much bigger than the direct costs. She set out her results: • In 2011, before the Investment Transformation Programme: Total costs came to: £290 million: 1.69% of assets. The figure was made up of direct costs: £78 million; indirect costs: £212 million • In 2016, after the programme: Total costs were brought down to £192 million:

This is my third theme: my crystallising case history: Railpen Chairman Paul Trickett outlined to us his “Investment Transformation Programme”. Their scheme has assets of £25 billion. They estimated that the costs amounted to £70 million a year. But they were aware that the managers were reluctant to give details. They Edition #6

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agers don’t send audited accounts. Some managers don’t send transaction cost information. Chase them all. Her conclusions: just 0.82% of assets. The big decrease did indeed come from indirect costs: down from £212 million to £120 million

• “Even when you have all the information it’s tricky!” “It’s a lot of effort; but it is doable!”

“What should be the approach?”

What did our AMNT members conclude from all of this?

• Have an annual checklist. Identify the mandates for all pooled investment vehicles. Write to all managers and ask them for their transaction costs. Ask for audited accounts.

• Costs of 1.69% of assets came down to just 0.82% of assets. On a typical sized fund of £100 million, that could represent a saving of £800k a year.

What are the pitfalls you will encounter? • Some managers don’t respond at all. Some man-

• A saving of that scale could affect investment strategy, and could help to cut risk. Many of our members have funds that operate on a target return of, say, LIBOR plus

3%. So a halving of costs can make a big impact So, in conclusion, I wish to state this: • The voice of the AMNT has significant weight behind it. • We pay tribute to the prophets, the popularisers and the politicians in the transparency debate. We add our own distinctive contribution as the practitioners. We are the ones who make things happen in individual schemes. • It’s not a race to the bottom, as some opponents of transparency try to pretend. It is about better outcomes. It is about VFM for members. That is what trustees do! We look forward to working with others to help bring about better costs disclosure.

David Weeks was elected as Co-Chair of the UK pension industry’s Association of Membe Nominated Trustees (AMNT) in March 2016. The AMNT has 600 members, representing 400 occupational pension schemes, with assets under management of £600 billion. Members divide between defined benefit and defined contribution schemes on a 60: 40 basis. David Weeks is a director of a defined benefit pension scheme, with a leading PLC in infrastructure services as the sponsoring employer. He is active in the affairs of the World Pensions Council, for whom he has made presentations to, and acted as rapporteur at, international conferences. Journals that have published contributions from him recently include “Revue Analyse Financiere”, “Professional Pensions”, “Engaged Investor” and “Pensions Expert”. He has been a judge for major UK pension awards. In his previous career David Weeks has experience of both public and private sectors, and of their respective pensions regimes. Most recently, he served as a consultant or executive in UK Government Departments, including Home Office, Health, Trade and Industry, and the Office of the Deputy Prime Minister. Earlier, he worked in private sector business development and marketing, and in international advertising agencies. David Weeks is a graduate in history of the University of Bristol.

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The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


DON’T MISS THIS!

WE HAVE ANOTHER GREAT LINE-UP OF SPEAKERS: Daniel Godfrey - Co-Founder, The People’s Trust John Moret - Chair of Investor in Customers & Principal of MoretoSIPPs Julius Pursaill - Independent Governance Consultant & NED of Byhiras Trust Adam French - Co-Founder & MD of Scalable Capital Philip Miller - Founder of Pension Focus

The event will include discussions and debates on the key transparency-related issues impacting the market and consumers, particularly on the very hot topic of costs disclosure. Where is it? Dimensional Fund Advisors, 20 Triton Street, Regent’s Place, London When is it? Wednesday 16th November, 10:30 registration for an 11:00 start, to 17:00

To book click

HERE!

Edition #6

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

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ARTICLE: Sophia Morrell

REBUILDING REPUTATIONS AND FIGH By Sophia Morrell, Independant Media Consultant

I have worked in and around the City for almost a decade. In that time, I’ve had the privilege to work with many people of integrity who share my passion for making the City the world-class centre for global business it can proudly claim to be. However, I know that post-financial crisis, not everyone shares my view that the City can be a force for good. There is still significant work to be done in rebuilding trust with the wider consumer population. This is more important than ever amid the wider market uncertainty we face in the Brexit negotiations. Financial services represents almost 75,000 jobs across the UK and is one of our major export industries – it is vital to the overall success of our nation. We need to get the rest of the

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UK on board in fighting our corner. I feel passionately about safeguarding the future of financial services and continuing to make this city one of the world’s most attractive business centres. This is why I am standing for election to become a Common Councilman of the City of London. Using my experience as a communications and policy consultant, I want to help the City find its voice and make sure it gets heard where it matters. In my day job, I spend time with some of the world’s largest asset managers and investment banks helping them to articulate how their conduct sits at the heart of who they are as businesses. In my work with the Transparency Task Force, I hope to take this one

step further by being able to showcase and encourage the forward-thinking companies who are taking the lead on consumer disclosure. An environment clouded by opacity in consumer relationships brings two main disadvantages. First, if consumers are not clear on what they are buying and paying for, then it is difficult for them to assess value in that transaction. More critically, a lack of clarity provides a climate which is open to exploitation by fraudsters. I’m proud to say that the City of London Police Economic Crime Directorate is the national policing lead for fraud – they are dedicated to preventing fraud at all levels. Their work is critical to the protection of vulnerable consumers and they have set the standard in tackling everything from boiler room scams to large-scale trading fraud. It would be an honour to be elected to the Common Council and be in a position to ensure that this work can contin-

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HTING CRIME

ue with the right funding and resources. I strongly believe that continued transparency will benefit both business and consumer, enabling us to continue to fly the flag for the City in uncertain times.

Sophia is running for by-election in Walbrook Ward on December 1st. If you work in or around the Walbrook area, she would love to speak with you. Find her full manifesto at www.sophia.morrell.com or contact her directly on Sophia.morrell@gmail.com Sophia Morrell is an independent media consultant with nine years’ experience in financial services as both a journalist and public relations practitioner. Sophia was most recently an Associate Director at Lansons, and now specialises in creating compelling content for a portfolio of clients. Sophia has worked on communications campaigns for some of the world’s largest asset managers, investment banks and fintech companies, including AXA Investment Managers, Invesco PowerShares and the Royal Bank of Canada. She is active in policy development and is Vice Chair of the Young Fabians Finance Network as well as sitting on the steering committee for Labour in the City, where her focus is on creating a fairer and more diverse financial services sector.

Edition #6

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

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ARTICLE: Pete Eggleston

FEEDBACK LOOPS AND MARGINAL GA SAVE COSTS AND IMPROVE RETURNS By Pete Eggleston, Co-Founder, BestX

“Without data you are just another person with an opinion” W. Edwards Deming, Data Scientist Continuous performance improvements, whereby all aspects of a process are examined with precision, are the hallmark of many leading teams and businesses. Seeking out such marginal gains, as exemplified by Sir Dave Brailsford with the GB cycling team, or the Formula 1 team of Mercedes McLaren, has now become commonplace, and in this article we explore how such approaches can be applied to a continuous refinement of best execution. TCA and execution analytics add considerably more value than simply providing a framework to satisfy regulators, compliance teams, best

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execution committees and asset owners. Investing in such analytics purely to ‘tick a box’ represents a missed opportunity to save significant amounts of money. In order to achieve this, however, it is imperative that the execution process is approached with an open mind. There needs to be an environment whereby all aspects of the process are monitored, measured, questioned and tested on an ongoing basis. An ‘open feedback’ loop is required in order to allow lessons to be learnt, and the necessary changes to enable improvements to be made. The opposite of such a process, a ‘closed loop’, does not test assumptions, or measure the impact of changes, or indeed, learn from

mistakes. In such an environment, the mantra ‘but we’ve always done it like this’ can often be heard quoted. Does this mean a world of decisions and actions taken by machines? Of course not. The financial markets are too complex and dynamic to allow a purely automated execution process. Equally, however, the complexity means that it would be impossible for a human to be able to process all of the necessary inputs to arrive at an optimal decision alone and without any ‘help’ from analytics. Clearly, the answer is combining the best of both – the experience and intuition of humans with the process-

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


AINS – USING TCA TO S ing power and objectivity of machines. Machine learning can add value, and is a topic of research at Best, but is best deployed in the hands of an experienced trader. There are many decisions taken every time a trade is conducted, some of which won’t matter in the overall scheme of things given, for example, the size of the trade. However, having the ability to at least monitor the impact of all dimensions, and checking whether decisions are having a material impact or not, seems a wise approach. The list of questions below, although not exhaustive, provides an idea of the range of decisions that now need to be taken: i) What time of day should I trade? ii) What size of trade should I execute? iii) Who should I execute

Edition #6

with? iv) Should I trade principal or request the counterparty to act as agent for my order? v) If I trade principal, should I trade via the phone or electronically? vi) If I trade electronically, which platform should I trade on?

xi) If I use an algo, or order, should I employ passive order types or not? xii) How quickly should I trade?

vii) Should I hit a streaming firm electronic price, or should I trade RFQ? viii) If I RFQ how many quotes should I request? ix) If I trade electronically, should I use an algo, and if so, which one? x) If I use an algo, which venues do I want it to execute on?

Clearly, such questions are not explicitly answered for every single trade. A desk

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may be executing thousands of tickets per day, and the process may be defined and automated for the majority of these. The larger trades may warrant more careful attention, and follow a decision making process which requires further insights and analysis. Either way, a comprehensive TCA framework should allow both the broad automated processes, and individual trade decision making, to be measured and monitored over time to check if the original assumptions are still valid. For example, a best execution process may have defined that all funding trades of less than USD 50m notional are submitted to an RFQ process on a specific EMS, whereby 5 counterparties are requested to quote. This ‘rule’ may have been put in place several years ago. Does it still make sense in today’s market? Regular and ongoing evaluation of the execution performance and total costs are required to answer this question. Analysis of the costs for the entire book of business over a period of time may indicate that tickets of

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greater than USD 50m notional, that are not subjected to the RFQ rule, have started to systematically incur less cost, indicating that it may make sense to revise the rule? The complexity of the financial system, however, means that it would be imprudent to simply make the change and hope for the best. There may be other factors at play that are resulting in the observed change in costs. Splitting the business into two and testing half of the portfolio with a revised RFQ rule for the following quarter would allow a more scientific approach to be taken. Such ‘controlled tests’ are widely used in all scientific disciplines and form the basis of any open feedback loop. Change an assumption, perform a controlled test and revaluate the results to check if the original hypothesis was correct. If yes, then incorporate the change into the best execution policy going forward with the benefit of having a quantitative and rigorous process behind the decision. If no, then go back to the

original process and test a different assumption. For example, perhaps the majority of trades with notional of greater than USD 50m were executed by two counterparties that were different to those used for the RFQ business. In which case, maybe test the original RFQ rule but this time replace two of the counterparties with the two that perform well for trades greater than USD 50m. And so on. Some of these changes may not result in cost savings. Some may result in marginal savings, and some may contribute significantly to the bottom line. However marginal though, in a world of either low or negative yields, then very single basis point really does count. As an example, returning to the list of questions earlier, let’s just focus on the first one regarding timing. Using the Best fair value cost estimates, we analysed the costs of trading 50m AUDUSD every day for the period of January to May this year. If this trade had been executed at 9am London compared to 2am London, the total cost saving would have been approximately 33 basis points (AUD 167,000) over this period. For a US investor, if the trade had been executed at 9am London instead of 9pm London, the cost saving would have been a whopping 250 basis points (AUD 1.26m). Clearly, such simple analysis does not take into account factors such as opportunity cost, but the point is to illustrate that simple changes can result in considerable savings.

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


Pete Eggleston co-founded BestX , an independent technology company, in January 2016. Prior to BestX he spent almost 6 years at Morgan Stanley, establishing the Quantitative Solutions & Innovations (QSI) team within the Fixed Income Division in 2010, a client-facing quantitative group that sought to add value to client investment processes through the delivery of algorithmic products, execution/TCA analytics and bespoke projects. Prior to joining Morgan Stanley, Pete has held a number of roles within the financial industry, commencing his career at NatWest Markets in 1992, and subsequently ABN AMRO and RBS. Peter holds a BSc in Chemistry from London University, as well as an MSc in biodiversity conservation, also from London University. Contact: pete@bestx.co.uk Over the course of 2016, we have analysed thousands of FX transactions at Best from a wide and diverse array of FX market participants. It is clear from this analysis that there are many cost savings to be made for the majority of institutions, across many dimensions of the execution process. Best practice should never be to simply settle and assume that what I’m doing is the best I possibly can. After all, Dyson famously tested over 5,000 versions of his vacuum prototype before launching . The dynamic nature of financial markets, especially in OTC markets at the moment as they continue to transform driven the regulatory fallout from the financial crisis, require an ongoing evaluation of ‘best’ practices and ways of doing things. Learning by doing, including from both positive and negative results, in a measured, systematic and controlled way is one way to navigate this complexity.

the market structure changes, especially the drive towards a more order-driven market at a time when the traditional banking market makers are providing less inventory management in the system due to regulatory changes, is still to be fully determined. However, the recent flash crash in Sterling, is a sign of things to come. Fragmented markets, supported by less risk capital, with the majority of pricing and risk management processes managed electronically, all contribute to more volatile liquidity conditions for the foreseeable future. In such a market, the decision making around how, when and with whom to execute

becomes increasingly difficult, especially when coupled with the need to justify such decision making. An interactive, rigorous and systematic approach to measuring and monitoring execution performance, and then using this information to continually enhance the process, is rapidly becoming an essential component of any best execution policy. Static TCA reports of the past, produced and filed in a drawer for a rainy day if anyone asks, are no longer adequate.

FX is a simple product, but with a complex market, which is getting increasingly more complicated. The impact of Edition #6

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

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ARTICLE: JB Beckett

LTIP Transparency: Clear Incentives to

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

Every day I seem to read about executive pay. We are all too aware how fee compression and a growing hunger for transparency is changing our industry. It is the backdrop of the Active-Passive debate every bit as much as abstracts like Active-Share. As part of the Transparency Task Force I feel the wider fees debate is currently amiss two things: 1) research costs and soft commissions and 2) fund management remuneration structures. In this paper we tackle the latter. shareholders. The conflicts of interest are so complex and opaque that it is hard to know if asset managers can be unbiased or not. Should we then not first address the City’s remuneration so that it can exact change across the rest of business? We must start by acknowledging the wealth inequalities within the City itself:

We have recently seen how some firms have moved to a flat basic pay structure. This may sound very admirable until you read the small print and see that managers received inflated salaries to adjust for loss of bonus. Imagine waking up on the first morning of the new working year knowing the money is in the bank irrespective of

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how you perform? Of course flat structures may engender better behaviours but then that was the purpose of Long Term Incentive Plans (LTIP). Only the few seem to question the City having a say on executive pay, yes they are de facto representatives of shareholder assets but they are themselves also highly paid executives, in many cases reporting to

“And yet, although the finance industry today displays many examples of egregious excess, the majority of those engaged in it are not guilty or representative of that excess. They are engaged in operating the payments system, facilitating financial intermediation, enabling individuals to control their personal finances

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


o do Right

ofessional

Fund Investors,

and helping them to manage risks. Most people who work in finance are not aspiring Masters of the Universe. They are employed in relatively mundane processing activities in banking and insurance, for which they are rewarded with relatively modest salaries. We need them, and we need what they do.” John Kay, June 2015. As a fund selector I can see through my DDQs that just about every house has a form of LTIP and that just about every version is different. Which is right and importantly which works are great unknowns within our industry.

“Creating a cross-industry panel to canvass opinion, conduct analysis and debate the future direction of asset management remuneration is more than just desirable; it is absolutely critical to the wider cost transparency debate, executive pay and the future reputation of the City.” JB Beckett, Chartered MCSI, for and on behalf of the Transparency Task Force.

It is not helped by the commingling of executive pay and fund manager pay, one is an issue for shareholders, the other for investors. Executive pay is subjective (sorry subject) to corporate governance, remuneration NED committees and shareholder voting, the other is not and largely driven by assets, performance, competition and asset manager war games.

and remuneration? What hasn’t been done is an assessment of what sort of remuneration structures work, how much is paid out, how many in each firm are eligible and what sorts of customer outcomes emanate from each firm. The answers are not readily available so I suggest fund buyers start with questions in their Due Diligence. Questions to the fund manager that might include:

Commonality itself is good from a transparency point of view but the underlying motives, factors and outcomes will differ. Should there be a universal standard for LTIP

1) Do you subscribe to the current LTIP standards, if yes, which? E.g. AIFM Remuneration Code, Kay Review, Stewardship Code, UK Corporate Governance Code,

Edition #6

IA Guidelines, AIM Code. 2) Is your firm a public listed company, a subsidiary of a public listed company, a partnership or a limited company? 3) How many employees do you employ? Of those how many employees do you employee to analyse markets, set asset allocation, manage funds or otherwise involved in the portfolio management process? Of your total employees, how many are eligible to LTIP or other form of variable pay or bonus structure? 4) Do you pay only a basic salary or a variable package,

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

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for example LTIP? If basic only, do you benchmark that salary to the market including other asset managers that do pay bonus related packages? 5) Do you employ either; Long Term Incentive Plans, Deferred Bonus, Performance Share Plans, Share Ownership Plan Trust (‘ESOP’), Joint Share-Ownership Plans (JSOPs), Enterprise Management Incentive Plans (EMIs), Equity Participation Plans, Shares for Rights, Nil cost Options, Restricted Stock Units, Restricted Stock, Vesting equity schemes or other bonus/variable structure in addition to basic salary? 6) How is your LTIP calculated, what factors used, like win/loss ratios, information ratios, capital loss, active-share, degrees of freedom etc? How is it weighted, is it ever clawed back and paid over what timescale? How do you measure success of those paid LTIP? 7) What is the total cost of your staff remuneration per annum, of that how much is paid by LTIP, bonuses or variable salary?

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. UK Lead, Association of Professional Fund Investors www.profundinvestors.com

There are far more questions belying these, as an industry we need to tackle remuneration if we are to tackle costs and transparency.

JB is also an Ambassador of the Transparency Task Force

Collectively we seek fund managers who are paid for good customer outcomes, not for the size of assets accumulated or by virtue of status.

http://highpaycentre.org/files/HPC_11_Paid_to_perform_06.pdf

Other work needed includes experience from asset managers and empirical analysis of LTIP structures versus investor outcomes.

USEFUL LINKS:

http://www.johnkay.com/2015/06/15/other-peoples-moneyintroduction/ http://www.telegraph.co.uk/finance/economics/8901055/Whois-right-in-the-big-pay-debate.html http://ww2.cfo.com/gaap-ifrs/2016/10/incentive-plans-nongaap-performance-measures/ https://www.theguardian.com/business/2016/oct/05/ boardroom-bosses-advised-meet-workers-justify-paypractices-legal-general-inequality http://uk.businessinsider.com/theres-a-problem-with-pay-forperformance-2016-10

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The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


DON’T MISS THIS!

WE HAVE ANOTHER GREAT LINE-UP OF SPEAKERS: Daniel Godfrey - Co-Founder, The People’s Trust John Moret - Chair of Investor in Customers & Principal of MoretoSIPPs Julius Pursaill - Independent Governance Consultant & NED of Byhiras Trust Adam French - Co-Founder & MD of Scalable Capital Philip Miller - Founder of Pension Focus

The event will include discussions and debates on the key transparency-related issues impacting the market and consumers, particularly on the very hot topic of costs disclosure. Where is it? Dimensional Fund Advisors, 20 Triton Street, Regent’s Place, London When is it? Wednesday 16th November, 10:30 registration for an 11:00 start, to 17:00

To book click

HERE!

Edition #6

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

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ARTICLE SUBMITTED BY: Dr. KARA TAN BHALA

REVIEW: THE BIG SHORT

by Seven Pillars Institute for Global Finance and Et

This article was first published by Seven Pillars Institute for Global Finance and Ethics: www.sevenpillarsinstitute.org , and is republished with the permission of the Institute. The Big Short (2015) is an ambitious attempt to capture the story of key players in the 2008 Great Financial Crisis (GFC). Unethical behavior exacerbated the problems and compounded the disastrous consequences. An analysis of two acts spotlighted in The Big Short indicates one (shorting) is not wrong per se and another (ratings by S&P) as unethical. The Ethics of Short Selling Historically, short selling or shorting is viewed negatively and some call it as “betting against the home team.” In The Big Short Ben Rickett (Brad Pitt) reprimands his two business partners, Charles Geller (John Magaro) and Jamie Shipley (Finn Wittrock), when they dance in the lobby of a Las Vegas hotel after successfully completing business deals to short triple

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A mortgages. Rickets says, “If we’re right, people lose homes, people lose jobs, people lose pensions. Here’s a statistic for you, for every 1% unemployment rises, 30,000 people lose their lives.” Yet, the tragic events Rickets describes are a consequence of a crash in property prices, not of shorting securities linked to the property. The maligned character of shorting is not entirely deserved. Shorting provides benefits to the economy such as liquidity, lower volatility, and

market information. These factors lead to better price discovery and thus, are useful as checks against overpricing. Short selling also provides a measure of stability to investors, who use the technique to hedge portfolios against risk. Additionally, short positions reinforce the idea that prices can in fact go down, as many in the market thought it was impossible for the housing market to decline. In this scenario, we must separate the result of Geller and Shipley being on the right side of the short, and ordinary Americans losing homes. The homes will be lost despite the shorting. After examining the actual prospectuses of the mortgage-backed securities, Michael Burry comes to the conclusion that logically, the housing market must collapse. Geller and Shipley make money when the default

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


thics rate rises, but they are not the cause of the increasing defaults. They forecast a crash in prices and acted to profit from this prediction. Their act of shorting is not unethical. Transparency While it was not illegal for Burry to create such a huge short position, Burry’s boss says, “We had an understanding.” Burry fulfilled part of his duty by doing impressive indepth research. Although not stated in the movie, Burry had all of his savings in this fund, proving he had “skin in the game”. Despite this personal investment, Burry still wanted a larger amount of money in the fund because his net worth was not enough. At the time of the investment, people thought shorting the housing market was not a profitable enterprise, especially as doing so was not even possible when the fund was initially created. To get the funds, Burry did not inform his investors his plans to have Wall Street create a huge short position in the housing market. This move was unprecedented because shorts against the housing market did not exist at that time. Burry’s risk tolerance may have been higher than his investors. It seems that a lack of communication was the biggest problem. It Edition #6

may have been imprudent to have a huge short position. Burry also lacked humility because no amount of due diligence can guarantee a profitable trade. As Keynes said, “The market can stay irrational longer than you can stay solvent.” The big short The movie lionizes Burry as a person who outsmarted villainous Wall Street. But Burry took on an enormous amount of risk and was lucky he could pay the premiums. If fund investors understood Burry was going to short the housing market, they would not have agreed to be in the fund and therefore, his action of creating a huge short position without being fully honest and transparent with investors was unethical. The Ethics of S&P

complacent and at worst fraudulent and complicit in creating the financial crisis. The S&P rater says “Look, if we don’t give them a triple A, they’ll go right down the street to Moody’s.” For the sake of lucre, the ratings agency in the movie did not give an honest assessment of the bonds, instead giving a false impression of the riskiness of Mortgage Backed Securities (MBS). While S&P and the banks gained millions of dollars worth of utility, the catastrophic negative utility millions of others had to bear in lost homes, jobs and assets clearly outweighs S&P’s profits. The act of giving misleading high ratings to poor quality securities for the sake of personal profit is unethical.

Later in the movie, Mark Baum (Steve Carrel) and Vinny Daniel (Jeremy Strong) interview S&P. In the film the rating agencies were at best

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

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Examining the rating issue using a Kantian duty based framework, S&P’s act also comes out as unethical. A rating agency’s role is to provide informed guidance on the riskiness of bonds. If a rating agency assigns a triple A rating to an extremely risky mortgage, the agency is clearly violating its integrity and derelict in its duty of providing impartial, expert guidance. As post-hoc rationalization, S&P may feel justified in saying, “We thought these mortgages were of the highest quality.” The key verb is “thought”. If the rating agency honestly believed an extremely risk bond was of the highest quality, it would not have done anything wrong, it would simply be doing a poor job. The fact S&P staff admitted giving higher ratings for fear of losing business runs counter to that defense. S&P was morally bound to tell the truth and engage in its business transactions with clients with integrity. S&P’s response to Baum’s inquiry is to assert Baum wanted the ratings changed for personal benefit. While the change of ratings would benefit Baum, he was not buying the rating. His intent, unlike the banks, is for ratings to be accurate representations of bond risk. Rationally, the ratings on the mortgage-backed securities should decrease when default of the underlying assets, the measure of riskiness, increases.

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The big short

created a moral hazard as individuals in banks had incentives to sell them to boost the bottom line, but their complexity made risk analysis difficult. Investors placed their trust in CDO managers, who selected the securities in the CDO portfolio and monitored the assets. In Las Vegas, Baum interviews a CDO manager, Mr. Chau, about who he represents. Mr. Chau claims he represents investors but failed to disclose the inordinate influence on securities selection wielded by a client hedge fund. This deliberate deception is unethical because it violates the trust that investors, whom he claimed to represent, placed in him.

The Ethics of CDOs and MBSs

The Big Short as Ethics Education

Are MBSs and Collateralized Debt Obligations (CDOs) ethical financial instruments? Lewis Ranieri created the MBS in the 1970s. Jared Vennett describes the MBS as “simple and valuable, but it mutated into a monstrosity that collapsed the world’s economy.” An MBS can diversify risk of individual mortgages, but it also makes the overall risk more difficult to assess. Derivatives of MBS such as CDOs, synthetic CDOs and Credit Default Swaps (CDS) sprang up to meet different market needs.

Given the inherent constraints of a film, The Big Short did a good job portraying events and ethical issues in the GFC. The movie consistently portrayed Wall Street as an evil entity that is separate from the economy. Yet, Wall Street is made up of individuals and the movie should have done more to encourage individual ethical behavior and integrity. Finance can be a dull subject, so we applaud

Another case involves the Florida real estate brokers. In their search to assess the riskiness of the housing market Mark Baum and his team interview brokers’ clients, known ironically as strippers. One stripper tells Baum that her broker assured her interest rates would not increase. Baum replies, “Well, he’s lying. Actually in this case he’s wrong.” The movie implies the brokers were ignorant of the consequences of their actions. Yet, their actions are not excusable, because they should have exercised prudence.

The complexity of derivatives

The Big Short for presenting complicated transactions and instruments in an entertaining manner to a broad audience, encouraging people to think about ethics in finance.

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


Dr. Kara Tan Bhala is the President and founder of Seven Pillars Institute for Global Finance and Ethics, the world’s only independent think tank for research, education, and promotion of financial ethics. She also is a Visiting Research Fellow at Queen Mary University of London and an Advisor for IntegTree Compliance Consulting. Dr. Tan Bhala has over twenty-three years of experience in global finance, much of which was gained through working on Wall Street. She has worked on almost all sides of finance and has been a sell-side equity analyst, a sellside sales person, a buy side equity analyst and a senior portfolio manager. Dr. Tan Bhala was Managing Director and Senior Portfolio Manager of the Merrill Lynch Dragon Fund and Emerging Tigers Fund responsible for roughly US$2 billion in assets. Prior to running the Dragon Fund, Dr. Tan Bhala was a portfolio manager with Fiduciary Trust International. Following her adventures in finance, Dr. Tan Bhala was invited to lecture at the University of Kansas School of Business where she taught financial ethics. She moved on from her work in the academy to found Seven Pillars Institute. She is the lead author of International Investment Management: Theory, Ethics and Practice (Routledge, 2016) and a contributor of a chapter, “The Decline and Rise of Financial Ethics” to The Business of Ethics (Asian Institute of Finance, 2016). Dr. Tan Bhala has five degrees across three disciplines: a Bachelors (City University of London) and Masters (Oxford University) in Business, a Masters in Liberal Studies (New York University), and a Masters and PhD in Philosophy (University of Kansas). She is a member of the Council on Foreign Relations (US) and the Royal Society of Asian Affairs (UK). Dr. Tan Bhala has lived and worked in London, Oxford, Singapore, Hong Kong, New York, and Washington, D.C. and currently resides in Kansas City, Missouri. Edition #6

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

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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 3 teams, with each team having a particular area of focus. The three teams are: - Costs & Charges - Stewardship & Decision-Making - International Best Practice The following tables show the make-up of the teams; those in bold red are Team Leaders: First Name

Last Name

Job Title

Organisation Country

Costs&Charges Team?

Adam

French

Scalable UK Capital Limited

Yes

Andrew

Evans

Co-founder & Managing Director

Yes

Andy

Tarrant

Andy

Chief Executive Smart Pension UK Officer Head of Policy B&CE The UK & Government People's Relations Pension

Agathangelou Founding Chair Transparency Task Force Scottish Kirkwood Senior Manager Widows - Industry Development Tilba Lecturer in Newcastle Strategy & University Business Corporate Governance School

Angie

Anna

Brendan

Mulkern

Consultant

Callum

Mayor

Consultant

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Pen Partnership Pen Partnership

Yes

UK

Yes

UK

Yes

UK

Yes

UK

Yes

UK

Yes

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


Chris

Barrow

Christopher

Squirrel

Con

Keating

Craig

Rimmer

Daniel

Godfrey

Elizabeth

Scorpeo UK Ltd.

UK

Yes

Founder and CEO Head of Research Policy and Technical Specialist

Sciurus Analytics BrightonRock Group Pensions Advisory Service

UK

Yes

UK

Yes

UK

Yes

UK

Yes

CampbellWarner

Managing Director

UK

Yes

Gayle

Schumacher

Retired

Gabriel Research & Management

UK

Yes

Gerry

Wright

Partner

UK

Yes

Graham

Cook

UK

Yes

Henrik

Pedersen

UK

Yes

Henry

Tapper

Portfolio Solutions Managing Partner, CoFounder

Founder

Yes

Iain

Cowell

Head of Investment Solutions, UK & Ireland

Pension UK PlayPen Allianz Global UK Investors

Imran

Razvi

James

Monk

James

Singer

John

Simmonds

Public Policy Advisor Head of DC Investments Senior Associate Principal

John

Serocold

Principal

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Head of Business Development

Non-Executive Big Issue Director Invest Fund Management

Former MD, Coutts Smith & Williamson Investment Management LLP Macquarie Securities Clerus LLP

The Investment UK Association Aon Employee UK Benefits P-Solve UK CEM UK Benchmarking Inc

Studio SerocoldUK

Yes

Yes Yes Yes Yes Yes

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Julius

Pursaill

Independent Pension and Investment Governance Consultant

UK

Yes

Lucy Malcolm

Forgie Small

Yes Yes

Margaret

Snowdon

Policy Adviser ABI UK Managing Lynecombe UK Director Consultancy Ltd Chairman Pensions UK Administration Standards Association

Mark

Proffitt

Markus

Krebsz

Martin

Palmer

Michelle

Baddeley

Mike Natalie

Webb Winterfrost

Niall Nick

Ferguson Fleming

Nils

Johnson

Peter Philip

Eggleston Miller

Richard Robin

Metcalfe Powell

Ronnie

Morgan

Saul

Djanogly

Shaul

David

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Head of Sales Scorpeo UK UK Ltd Interim Chief UNECE GRM UK Risk Officer Zurich Financial UK Head of Corporate Services Funds Proposition Professor of University UK Economics and College London Finance

Consultant Chair/Client Director

Market Development Manager

Co-Founder and Director Founder Editor Strategic Insight Manager CEO

City Noble CFA Society, UK/Aberdeen Asset Management

Yes

Yes Yes Yes

Yes

UK UK

Yes Yes

UK UK

Yes Yes

UK

Yes

UK UK

Yes Yes

UK The Evidence- UK Based Investor Royal London UK

Yes Yes

British Standards Institute

Spence Johnson Limited BestX Pensions Focus

Best Interest UK Consultants Fin Tech Sector UKTI Financial UK Specialist Services Organisation

Yes Yes Yes

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Shyam

Moorjani

Partner, Financial Services Consulting

RSM Tenon

UK

Yes

Stephen Stephen

Budge Bowles

Principal Head of Institutional Defined Contributions

Mercer Schroders

UK UK

Yes Yes

Terence Tim

Prideaux Brown

UK UK

Yes Yes

Tim

Walton

UK

Yes

Tim

Sharp

UK

Yes

William

Jenkins

Amundi Director, Co-Head Operational Due Diligence

UK

Yes

Chris

Connelly

David

Rich

Principal Consultant CEO

Iain

Clacher

Associate Professor in Accounting & Finance

Jon

Parker

Director

Neil

Morgan

Ralph Stewart

Frank Bevan

Sunil

Chadda

Senior Pension Capita Asset Trustee Services CEO DC (UK) Cardano Product KAS BANK Manager Benchmarking

JB

Beckett

Edition #6

Head of Consultant Relations

Dimensional Fund Advisors

Manager, Data Morningstar Research and Analysis

Economic and TUC Social Affairs Department

AquilaHeywoodUK

Yes, leader

Accurate Data UK Services LeedsUniversity UK BusinessSchool

Yes, leader

JonathanParker UK Consulting Ltd

Yes, leader

Yes, leader

UK

Yes, leader

UK UK

Yes, leader Yes, leader

Managing CairnConsulting UK Director Ltd ConsultingChief NewFundOrder UK Investment Consulting Officer and Author

Yes, leader Yes. leader

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First Name

Last Name

Andy Anna

Agathangelou Founding Chair Transparency Task Force Tilba Lecturer in Newcastle Strategy & University Corporate Business Governance School

Anna

Walton

Principal Consultant

Con

Keating

Henry

Tapper

Head of Research Founder

Iain

Clacher

Associate Professor in Accounting & Finance

Iuliia

Shpak

Jackie

Beard

PhD University of East London/ Researcher Sarasin & in Finance/ Partners Systematic Strategies Director of Morningstar Manager Europe Ltd Research Services EMEA

James

Meenan

CEO

John Joshua

Belgrove Card

Judith

Donnelly

Julia

Dreblow

Luke

Hildyard

Senior Partner Aon Hewitt Chief Executive Kukua Officer Partner Squire Patton Boggs Founder sriServices and Fund EcoMarket

Policy Lead - PLSA Stewardship and Corporate Governance

Markus

Krebsz

Michael

Kemp

Interim Chief Risk Officer Senior Pensions Technician

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Job Title

Organisation Country

Stewardship & Decision-Making Team?

UK

Yes

UK

Yes

Energised UK Environments Limited

Yes

BrightonRock Group Pension PlayPen Leeds University Business School

UK

Yes

UK

Yes

UK

Yes

UK

Yes

UK

Yes

Ireland

Yes

UK

Yes Yes

UK

Yes

UK

Yes

UK

Yes

UNECE GRM UK

Yes

Pinsent Masons LLP

Yes

JNM Investment Governance

UK

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Neil

Morgan

Neil Nick

Latham Fleming

Paul

Lee

Paul

Marsland

Philip Rob

Brown Lake

Sarah

Hutchinson

Consultant

Saul

Djanogly

CEO

Sebastian Steve

Reger Cave

Terry

Ritchie

Tessa Tim

Page Middleton

Partner Associate Director Development Director FIA, Principal Technical Consultant

Valborg

Lie

Director

Alan

Salamon

Barry David

Mack Weeks

Managing UK Director Client Director Muse AdvisoryUK Co-Chair Association UK of Member Nominated Trustees(AMNT)

Emma

Craig

Henrik

Pedersen

Janice

Lambert

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Senior Pension Capita Asset Trustee Services Consultant Independent Market British Development Standards Manager Institute

Head of Corporate Governance

UK

Yes

UK UK

Yes Yes

Aberdeen Asset UK Management

Yes

Deputy Director High Pay Centre Head of Policy LV Responsible Rob Lake Investment Advisors Advisor

Marketing Specialist Managing Partner, CoFounder

Pensions Consultant

SJ Hutchinson Ltd Best Interest Consultants Sackers Smith & Williamson Trustee Solutions Ltd Mercer Pensions Management Institute

Borg Consulting Corpias

UK

Yes

UK UK

Yes Yes

UK

Yes

UK

Yes

UK UK

Yes Yes

UK

Yes

UK UK

Yes Yes

UK

Yes Yes, Leader Yes, leader Yes, leader

KAS BANK N.V.UK

Yes, leader

Clerus LLP

UK

Yes, leader

Independent

UK

Yes, leader

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Mark

Miller

Olivia

UK

Yes, leader

Seddon-DainesSeniorResearch ET Index Analyst

UK

Yes, leader

Paul

Hewitt

UK

Yes, leader

Rachel Sarah

Haworth Wilson

Policy Officer ShareAction ChiefExecutiveManifest

UK UK

Yes, leader Yes, leader

First Name

Last Name

Job Title

Organisation Country

Alex

Mazer

Amy

Auster

Founding Partner Executive Director

Common Wealth Australian Centre for Financial Services

Andy Anna

Agathangelou Founding Chair Transparency Task Force Tilba Lecturer in Newcastle Strategy & University Corporate Business Governance School

Chris

Tobe

Con

Keating

Dana

Muir

David Elias

Knox Westerdahl

Eric

Veldpaus

Eric Erik Felix

Plunkett Conley Mezzanotte

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Employee Benefit Consultant

Barclays Corporate & Employer Solutions

Senior Vigeo Eiris Development Manager

International Best Practice Team?

Canada

Yes

Australia

Yes

UK

Yes

UK

Yes

Investment Consultant Head of Research Professor

Stable Value USA Consultants BrightonRock UK Group USA University of Michigan's Ross School of Business

Senior Partner Sustainable Business Analyst

Mercer Australia The Centre for UK Synchronous Leadership

Strategy Novarca Group Holland Director Owner Redbrucke UK Founder ZenInvestor USA Assistant The Hong Kong Hong Kong ProfessorCo- Polytechnic Team Leader of University Acct. & La

Yes Yes Yes

Yes Yes Yes Yes Yes Yes

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


Francisco

Gomes

Frits

Meerdink

Graham

Wrightson

Heinz-Dietrich Steinmeyer

Henrik

Professor of Finance

London Business School Manager Fund PGGM Management Investments Partner Stephenson Harwood LLP Professor of University of Law, Director Muenster of the Institute for Labour Law, Social Law and Business Law

James

Wolff-Petersen Director and Co-Founder Meenan CEO

Janice

Lambert

Jerry

Moriarty

John Jon

Belgrove Lukomnik

Jonathan

Hall

Juan Kara

Zuluaga Tan Bhala

Marcus Mikael Nicholas

Orione Nyman Morris

Nicolas

Firzli

Nikki

GwilliamBeeharee

Richard

Field

Edition #6

Pensions Consultant CEO

UK

Yes

Holland

Yes

UK

Yes

Germany

Yes

PandaConnect Denmark

Yes

JNM Investment Governance

Ireland

Yes

UK

Yes

Independent

Irish Ireland Association of Pension Funds

Senior Partner Aon Hewitt Executive IRCC Institute USA Director Head of Aquila UK Financial Services President and Seven Pillars Founder Institute for Global Finance and Ethics

Editor in Chief Exakt Media Visiting Fellow The Martin School, Oxford DirectorWorld Pensions France General Council Food and Vigeo France Health Research Manager Institute for Financial Transparency

Yes Yes Yes

USA/Columbia Yes USA Yes

Brazil Sweden Australia

Director

Yes

USA

Yes Yes Yes Yes Yes

Yes

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

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Rosalie

Degabriele

Academic Finance

University of Technology

Australia

Stephen

Davis

Associate Director and Senior Fellow

Harvard UK Law School Programs on Corporate Governance and Institutional Investors

Yes

Steve

Kenzie

Executive Director

Yes

Suzanne SV

Shatto Rangan

UN Global Compact Network UK

Tomas

Wijffels

Ian

Fryer

Retail Investor USA Senior AIG UK Executive Policy Advisor Federation of Holland Dutch Pension Schemes

Paul

Secunda

UK

Head of Chant West Australia Research ProfessorofLaw Marquette USA and Director, University Law Labor and School Employment Law Program

Yes

Yes Yes Yes Yes, leader Yes, leader

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

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A M B A S S A D O RS Some of our campaigning community are Ambassadors; individuals that are particularly aligned to what we are doing and why we are doing it; and as such are a profoundly impactful force for the positive change we are all collectively striving to achieve. Our Ambassadors are listed below: First Name

Last Name

Job Title

Organisation Country

Ambassador?

Anna

Tilba

Lecturer in Strategy & Corporate Governance

Newcastle University Business School

UK

Yes

Catherine Con

Howarth Keating

UK UK

Yes Yes

Daniel

Godfrey

UK

Yes

David

Pitt-Watson

Chief Executive ShareAction Head of BrightonRock Research Group Non-Executive Big Issue Director Invest Fund Management

Consultant

UK

Yes

Jackie

Beard

Director of Manager Research Services EMEA

UK

Yes

JB

Beckett

Consulting Chief Investment Officer and Author

UK

Yes

Ralph Robin

Frank Powell

CEO DC (UK) Cardano UK Editor The Evidence- UK Based Investor

Yes Yes

Edition #6

London Business School Morningstar Europe Ltd

New Fund Order Consulting

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ABOUT TRANSPARENCY STATEMENTS 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.

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

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 please complete the sentence:

Thank you very much indeed

andy.agathangelou@ transparencytaskforce.org

CALL TO ACTION! PLEASE BE SURE TO PROVIDE YOUR TRANSPARENCY STATEMENT AS SOON AS POSSIBLE. WEBSITE COMING SOON!

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Helena Morrissey Chair | The Investment Association Dr. Kara Tan Bhala | President and Founder, Seven Pillars Institute for Global Finance and Ethics

“I believe there ought to be higher levels of transparency in financial services because it’s the very starting point for establishing trust.’ “I believe there ought to be higher levels of transparency in financial services because transparency is a pro-ethical condition that enables us to fulfill our fiduciary duty and to achieve justice and the common good. Assiduous transparency yields continuous trust.”

Tom Tugendhat “I believe there ought to be higher levels of transparency in finan| Member of Parliament cial services because it is the only way that markets can function for Tonbridge and Malling without distortion to the benefit of the true customer, the individual.” Angela Rayner | Former Shadow Pensions Minister, now Shadow Secretary of State for Education and Shadow Minister for Women and Equalities Frank Whiffen Head of Strategic Business Development | Ferrier Pearce

“I believe there ought to be higher levels of transparency in financial services because pension funds should be run with a constant eye on efficiency – every penny should be accounted for therefore costs must be transparent and easy to understand – they must be explainable without jargon. The duty is to pay pensions and ensure that the sponsoring employers enjoy the benefits of reduced costs, we must avoid funds entering the Pension Protection Fund, it should be the last option”. “I believe there ought to be higher levels of transparency in financial services because this will enable better decision making. In turn, this should be communicated in an engaging way so that sensible and informal decisions can be made.”

Phil Ninness Business Development Manager | Accurate Data Services

“I believe there ought to be higher levels of transparency in financial services because consumers are obtaining different views and news and there is a trust issue. People need honesty in plain english.”

Iain Cowell Head of Investment Solutions, UK & Ireland | Allianz Global Investors

“I believe there ought to be higher levels of transparency in financial services because sharing clear and understandable disclosures will drive positive innovation and can empower the customers of the industry to improve their long-term outcomes.

Martin Campbell Director | Beacon Strategic  

Steve Conley Business Development Director | Workplace Pensions Direct

Edition #6

“I believe there ought to be higher levels of transparency in financial services because for decades the industry has systematically ripped off the customer, while hiding behind deliberate and unnecessary opacity, to become wealthy at the customer’s direct expense.” “I believe there ought to be higher levels of transparency in financial services because Transparency is a means to an end, where the end game is greater accountability, good decision-making and trustworthiness … which leads to better commercial outcomes for members, sponsors, markets through investment, and in the long-run - via improved reputation, public engagement and a reduced savings deficit - for the asset managers themselves and the financial services industry as an whole”.

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JB Beckett Author #NewFundOrder | New Fund Order, Assoc. of Professional Fund Investors

"I believe there ought to be higher levels of transparency in financial services because optimum economic value has become remote and distorted and by virtue active fund management and professional fund buyers fragile to digitalisation”

Dan Norman CEO | TCF Investment

“I believe there ought to be higher levels of transparency in financial services because the money belongs to the consumer and they need to be given the best chance of making their money work harder so they don’t have to.”

Pauline Skypala Journalist | Freelance

“I believe there ought to be higher levels of transparency in financial services because it is impossible to make competent investment decisions and fund manager choices without being in full possesion of all the relevant information. Costs are foremost in this as future investment performance is unknown.”

Julia Dreblow Founding Director | SRI Services

“I believe there ought to be higher levels of transparency in financial services because it is the best way to make sure that people get what they want through enhancing trust; an aspect that is desperately low in our industry.”

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”.

Terence Prideaux Managing Director | Morley Hall

“I believe there ought to be higher levels of transparency in financial services because the aspirations of savers and their advisors will not be met if managers take more than headline fees and trust in the financial system will not be won”.

Richard Metcalfe | Principal, Richard Metcalfe Consulting

“I believe there ought to be higher levels of transparency in financial services, and particularly in pensions, because we cannot afford for people not to save for retirement”

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Elizabeth Campbell-Warner Co-Founding Director, Gabriel Research & Management 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.”

Edition #6

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Matthijs Verweij BD Mgr, Pensions | KAS BANK N.V.

“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”.

Ralph Frank CEO - DC (UK) | Cardano

“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”.

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

“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.”

Rachel Haworth Policy Officer | ShareAction

“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”. Henrik Wolff-Petersen “I believe there ought to be higher levels of transparency in finanDirector and Co-Founder | cial services because for being able to take rational decisions we Panda Connect need to have control of our data; independantly, timely and complete.”

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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 “I believe there ought to be higher levels of transparency in Freelance Journalist 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”. Henrik Pedersen “I believe there ought to be higher levels of transparency in finanManaging Partner, cial services because it will be good for everyone. Consumers will Co-Founder | be able to compare and demand better value for money and the CLERUS LLP financial services industry itself will benefit from becoming more competitive, lean and effective”. John Belgrove “I believe there ought to be higher levels of transparency in finanSenior Partner | cial services because consumers and clients need to trust the Aon Hewitt industry through having access to clear, open, honest, jargon-free information in order to make informed choices to meet their financial objectives.” Alexander Adamou “I believe there ought to be higher levels of transparency in finanFellow | cial services because financial markets are social constructs and London financial services are a public good” 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”. Adrian Holliday Reporter | Freelance

“I believe there ought to be higher levels of transparency in financial services because millions of consumers are reliant on it for their longterm savings future.”

David Weeks Co-Chair | AMNT

“I believe there ought to be higher levels of transparency in financial services because in times ahead, we must encourage people to save more in their working lives. We want them to be able to fund themselves for increasing numbers of retirement years. To do this, we must deliver, and be seen to deliver, prudent and open costs and charges”.

Edition #6

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Juan Zuluaga | Writer, InversionesSinllusiones. com Erik Conley | Founder, Zen Investor

Henry Taper | Director, First Actuarial & Founder, Pension PlayPen

“I believe there ought to be higher levels of transparency in financial services because it will help us to see what can be done better” “I believe there ought to be higher levels of transparency in

financial services because, as Vanguard founder John Bogle says: ‘the tyranny of compounding costs takes about two-thirds of the gains clients make. The client puts up 100% of the capital, and takes 100% of the risk, but only gets one-third of the return.’ Something is very wrong with our financial system. Investors deserve to know exactly what they’re buying and how much it will cost, today and over time.” “I believe there ought to be higher levels of transparency in financial services because people want to know what they’re buying. We cannot be trusted. Our system depends on trust and and fiduciaries managing our money. Until people consider themselves investing in a trustworthy way - we will remain untrusted. Transparency is the only way to break this vicious circle.

Clara Durodié | “I believe there ought to be higher levels of transparency Founding Partner, in financial services because trust is the birthplace of asset Cognitive Finance Group management” Richard Ellis | Institutional Relationship Manager, Sarasin & Partners

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“I believe there ought to be higher levels of transparency in financial services because savers / pensioners need to be properly informed about the products they invest in; they achieve the outcomes they expect; and to help build trust in the investment industry that is lacking at present”

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6


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. 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 Edition #6

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“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

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RECOMMENDED READING CONTINUED Transparency Games: How bankers rig the world of finance This is the story of how bankers with help from the members of Wall Street’s Opacity Protection Team (this includes politicians, economists, think-tanks, rating firms, investment charter constrained asset managers and the financial regulators) undermined the global financial system by reintroducing opacity. The result of reintroducing opacity was the worse financial crisis since the Great Depression and the slowest economic recovery. Transparency Games is about the bankers of Wall Street and the City of London creating and maintaining a veil of opacity to hide behind as they rig the global financial markets for their benefit. Their bad behavior isn’t constrained to simply misrepresenting financial products like toxic subprime mortgage-backed securities, but includes rigging the global interest rate, foreign exchange, commodity and equity markets so the bankers’ bets pay off.

By Richard G. Field. To find out more, visit: https://www.amazon.com/Transparency-Games-bankers-world-finance/dp/0990396819

International Investment Management: Theory, ethics and practice International Investment Management: Theory, Practice, and Ethics synthesizes investment principles, Asian financial practice, and ethics reflecting the realities of modern international finance. These topics are studied within the Asian context, first through the medium of case studies and then via the particular conditions common in those markets including issues of religion and philosophy. This book has a three part structure beginning with the core principles behind the business of investments including securities analysis, asset allocation and a comprehensive analysis of modern finance theory. This book is an essential text for business and law school students who wish to have a thorough understanding of investment management.

By Dr. Kara Tan Bhala. To find out more, visit: https://www.amazon.co.uk/International-Investment-Management-Theory-practice-ebook/dp/ B01EAI17WW/ref=dp_kinw_strp_1

Kentucky Fried Pensions: Worse Than Detroit Edition

Kentucky Fried Pensions follows my journey as the first public SEC whistleblower as I attempt to use the new Dodd-Frank law to clean up the culture of coverup and corruption in Kentucky Pensions. It explores the national links between corruption in investments via placement agents and corruption in underfunding that plague states like Illinois and Kentucky. It explores the Kentucky Employee Retirement System (KERS) for State Workers the worst funded state plan in the country (worse than any single IL plan) and how others can learn from its current death spiral. It also discusses the need for a Federal Bailout which is currently being discussed for Detroit and Chicago. It looks into the lack of transparency as evidenced by no disclosure of holdings in SAC Capital buried in a Blackstone fund for nearly a year after the scandal broke.

By Christopher Tobe. To find out more, visit: https://www.amazon.co.uk/Kentucky-Fried-Pensions-Worse-Detroit-ebook/dp/B00GCTHPFG/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1474870687&sr=1-1&keywords=kentucky+fried+pensions

Edition #6

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THE DIRECTORY OF PRO-TRANSPARENCY ORGANISATIONS 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:

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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 | October 2016 | Edition #6


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

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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 #6

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?

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

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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?

82

Is this the right classification for you?

The Transparency Times | www.transparencytaskforce.org | October 2016 | Edition #6

The Transparency Times Edition #6 October 2016  

The Transparency Times is the official publication of the Transparency Task Force, the campaigning community dedicated to driving up the lev...