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Launch Edition, May 2016

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

This month’s contributors include: Guy Sears

Interim CEO, Investment Association

Pete Glancy

Head of Industry Development, Scottish Widows

George Latham

Managing Partner & Chief Investment Officer, WHEB

Michelle Baddeley

Professor of Economics & Finance, UCL

Tom Tugendhat MBE, MP

David Pitt-Watson

Executive Fellow, London Business School

Paul Trickett

Barack Obama

Andy Agathangelou

Dr. Chris Sier

Chair, Railpen Investments

Founding Chair, Transparency Task Force

Catherine Howarth

Chief Executive, Share Action

President, United States of America

Professor of Practice, Newcastle Uni. Business School

Henry Tapper

Founder, Pension PlayPen

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


THOUGHTS FROM THE EDITOR The first meeting of The Transparency Task Force took place on 6th May 2015, at London University’s Senate House. Over 20 people attended. There was just one agenda item: to discuss whether there would be merit in a completely new and independent community to actively campaign for greater transparency in financial services. None of us could have possibly known what was going to happen... As intended, the individuals represented many parts of the financial services sector. They were from KAS BANK, The Pension PlayPen, The Trades Union Congress, The Investment Association, City Noble, Hermes Fund Managers, The ABI, Brighton Rock Group, The Department For Work and Pensions, COO Connect, CLERUS, Leeds University Business School, The PLSA, JNM Investment Governance, The Pensions Regulator, Studio Serocold, Dimensional Fund Advisors, Squire Patton Boggs, CFA Society UK, NOW: Pensions, BDO and Eversheds. A consensus was quickly built that there was too much wrong with the status quo to not do something about it and consequentially there was enthusiastic support for the idea that a new group was necessary. The over-riding sentiment was one of “it’s amazing that such a group doesn’t already exist!” and for me personally, there was a huge sense of déjà vu about that feedback;

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I’d heard exactly the same comments when helping to create The Association of Member Nominated Trustees and The CIPP’s Friends of Automatic Enrolment, two fantastic organisations that have gone on to do great things. Since 6th May 2015 The Transparency Task Force has:- Actively engaged with The Financial Conduct Authority, The Department for Work and Pensions and The Pensions Regulator - Built a database of many thousands of individuals interested in the topic of transparency in financial services

Costs & Charges, Rational Decision-Making, Stewardship and International Best Practice - Recruited 106 people into those teams, 16 of whom are from overseas including USA, Canada, Australia, France, Germany, Holland, Norway and Ireland - Been driven forward by some simply superb individuals who have become Team Leaders; their commitment to the cause is outstanding - Organised and estab-

- Held three Transparency Symposiums that have been well attended, benefited from many great speakers and enjoyed a true sense of camaraderie - Awarded two Transparency Trophies; one to Tomas Wijffels of The Dutch Association of Pension Funds and the other to Catherine Howarth of ShareAction - Organised 5 teams: Data,

Senate House, University of London

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lished a regular routine for our Teams Days – the first Tuesday of the month - Recruited Ambassadors, including David Pitt-Watson, Daniel Godfrey, Catherine Howarth, Chris Sier and Con Keating - Been represented at several financial services sector events, had articles published in many industry publications and been written about in even more - Started to develop three brands: The Transparency Task Force, The Transparency Symposiums and The Transparency Trophy. And now, just a year later we are all very proud to be issuing this, the launch edition of The Transparency Times, our monthly online magazine. Our launch edition is dedicated to everybody that has helped to get us to where we are so far.

I make that point because whilst I know for certain we have started to build a community, I’m now starting to wonder if maybe, just maybe, our community may, over the months and years ahead, grow into something of a movement. I guess time will tell if I’m right, but what is already beyond doubt is that many people are getting involved with our campaign. Some are driven by a truly honourable sense of altruism; some are just fed up with the reputation of the sector we’re in and want it repaired; and others have realised that transparency is a commercial virtue. In many ways we’re not too worried about what the motivations are for people getting involved; what matters most is that something is making people want to make things better, clearer, less opaque.

And there really is a great deal more opacity in the market than there should be. In the last year I have learned about market practices that are shocking. There are things going on that just shouldn’t be happening; you’ll get many clues about what they are within these pages. As you find them, ask yourself if you think the positive change we’re after is worth achieving. If that is how you feel, then you belong in our community - reach out and you’ll be glad you did. We’re very much the underdog, with all the odds stacked against us and we need all the help we can get. You can help, clearly. Please do.

And where are we? Well, we’re a long way from where we started... ...even further from where we want to get to... ...but definitely, most definitely heading in the right direction. I’ve read all the articles you are about to read and I have come to the conclusion that what happened on 6th May 2015 at Senate House may become far, far more significant than any of us could possibly have thought that day. | May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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CONTENTS: LAUNCH EDCITION | MAY 2016

THE OFFICIAL PUBLICATION OF

Tom Tugendhat

Guy Sears

Chris Sier

Barack Obama

David Pitt-Watson

Andy Agathangelou

MBE, MP Tonbridge, Edenbridge and Malling Constituency “Today’s investment industry isn’t a free market” Page 5

Professor of Practice, Newcastle Uni. Business School “Cost transparency, sorry opacity in UK pension funds” Page 8

Executive Fellow,London Business School “Sunlight is the best disinfectant” Page 16

Paul Trickett

Chair, Railpen Investments “Investment costs - what we don’t see” Page 18

Michelle Baddeley

Professor of Economics & Finance, UCL “Transparency and Competition in Asset Management” Page 22

Pete Glancy

Head of Industry Development, Scottish Widows “Transparency can address the challenge of asymmetry” Page 26

Interim Chief Executive, The Investment Association “The road towards enhanced transparency” Page 43

Presdent, United States of America “Cracking down on conflicts of interest in retirement savings” Page 46

Founding Chair, The Transparency Task Force “Time for a transparency tsunami” Page 52

All you need to know about: The Transparency Symposium Page 58

All you need to know about: The Transparency Task Force Teams Page 60

All you need to know about: Transparency Statements Page 66

Catherine Howarth

Chief Executive, Share Action “A window of opportunity for pension transparency” Page 30 Rachel Haworth Policy Officer, Share Action

Henry Tapper

Founder, The PensionPlayPen “How can the IGCs help create transparency?” Page 34

Recommended Reading Page 70

All you need to know about: The Directory of Pro-Transparency Organisations Page 72

George Latham

Managing Partner & Chief Investment Officer, WHEB “Building longer term relationships with clients” Page 36

David Rich

Chief Executive Officer, Accurate Data Services Ltd “Transparency: Goneaways and unclaimed assets” Page 40

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ARTICLE: TOM TUGENDHAT MBE MP

TODAY’S INVESTMENT INDUSTRY ISN’T A FREE MARKET by TOM TUGENDHAT MBE, MEMBER OF PARLIAMENT | TONBRIDGE, EDENBRIDGE AND MALLING CONSTITUENCY Over the past year I have learnt many things about how our country works. Who to ask to put down a Parliamentary question; how to secure time in the Chamber of the House of Commons for a debate; where to catch the Prime Minister to make sure he hears your community’s need for better broadband or railways. But the thing that has surprised me most is the silent tax system that is doing me most damage – how much my pension costs. It’s not easy to find out how much the folk looking after your money are charging you. I’ve got friends in the asset management industry who had to spend a number of days going through the books. I didn’t know until I demanded the information. It turns out that the management fee was just the start of it. With all the small percentages added up it was many times that.

Transaction costs, on-going charges, management fees and exit costs were all hidden, included in the fund or not clearly advertised. This meant that spur for competition was not there. How could there be when no one knew what they were really paying? This isn’t fair. For some asset managers it’s not just market movements that matter; they profit from churn. While I have to hope they know what they’re doing, the manager just has to buy and sell funds or shares to keep charging the investor. With each trade often costing at least £10 with, of course, a percentage on top, this soon adds up. I am a strong supporter of free markets and competition. That’s why I am a Conservative. I do not object to companies charging a fee for the services they offer. I don’t mind if the fees vary

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wildly. That is not my business, as long as they’re made clear to the consumer. Today they aren’t and that’s a problem. Today’s investment industry isn’t a free market. Hidden fees make proper comparison, and therefore competition, impossible and that’s not right.

As billions of pounds are invested by families and individuals across our country we have a responsibility to see that people are getting a fair deal and not just subsidising the City few. With more and more using the new ISAs in coming years this is ever more important. Because people must have the confidence to know they are saving for their future, not paying for someone else’s lifestyle. These hidden fees mean that whatever we put aside, we can’t be confident that this isn’t the case, and so the home we’re saving for will be smaller, the holiday shorter or the retirement will come later. Some may think that this

doesn’t affect them. It may not today but with the auto-enrolment dates approaching many currently without savings will soon be building up a nest egg. That’s great news, but although annual management charges will be capped and auto-enrolment pensions will be cheaper than many private pensions, the temptation to use other fees within funds will be great. That’s why full disclosure matters for today’s £9 billion in private pensions today, and tomorrow’s auto-enrolment cohort. It looks clear that these covert means of profit (scalping as some call it) are growing. Top wealth managers have seen their income rocket by 7% in the past year despite selling almost half as many new funds as they once did. And more than half their income now comes from ongoing fees levied year on year after the initial investment is made. That’s up from a third last year. While we’re dependent on a growing economy, they are clearly not. Their profit comes from us not noticing what we pay. These fees sound small but soon add up. Initial set up costs of 2-3%, an annual management charge of 2% (auto-enrolment is capped at 0.75%), and an exit fee of perhaps 5% are not unusual in ISAs or private pensions and those costs can shrink savings by a third over a lifetime. And that’s based on a 7% annual growth.

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taking action. We have to bring about thorough reform. I am calling for fund managers to have a legal duty to be open with their clients. Those who act on our behalf, whether as lawyers, doctors or investment managers, should always act in our best interest.

That means a pension could be a third smaller just because you didn’t notice a few percent a year. That’s why I’m calling for the Department of Work and Pensions to change the rules. Pension providers should be required to publish an annual statement updating projected savings, net of charges and to detail the charges, all charges, separately in a breakdown. These fees should be listed alongside the cumulative impact they will have. That would bring clarity and enable genuine competition. And it should apply to all savings.

In the legal and medical world this is widely accepted. It should be in the financial world too. Greater openness would end the culture of hidden fees while easier switching of auto-enrolment pensions would improve competition. We need to work together. The Advertising Standards Agency, the DWP and those parts of the industry who are already clear with their clients should work together to bring the rest along. We should see an end to ongoing charges, exit fees and the many other stealth taxes imposed on our savings. That would make us all better off as the returns improved, more of us would save.

Editor’s Comment: Tom Tugendhat MBE MP’s call to action is exactly what is now needed. With the Financial Conduct Authority’s Asset Management Market Study underway there is every opportunity that the reforms he has been campaigning for can now be delivered without undue delay - for the benefit of the Great British public and the reputation of the UK’s investment industry too. He is campaigning for the investment industry to be legally obliged to be transparent with their clients, particularly on costs and charges - surely that’s not too much to ask for? You can watch Tom Tugendhat putting a question on this vital issue to the Prime Minister recently by clicking here: http://parliamentlive.tv/ event/index/c9ad1ff7426d-40ff-bbb1-915ff24ba21c?in=12:25:17 And well done to David Cameron for such an emphatically positive response! Looks like it’s time for action!

I’m not the first person to have noticed this. Back in 2013, the Office of Fair Trading said there was ‘insufficient transparency and comparability of charges’ in the pension market. They said providers weren’t including costs and charges within the annual management charge in a consistent way comparisons were not like with like. This hasn’t changed and that’s why I’m | May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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ARTICLE: DR CHRISTOPHER SIER

COST TRANSPARENCY, SORRY OPACITY, IN UK PENSION FUNDS by DR CHRISTOPHER SIER, PROFESSOR OF PRACTICE | NEWCASTLE UNIVERSITY BUSINESS SCHOOL AND DIRECTOR |FINEXUS I’ve been doing this for a long time. Eight years in fact. Longer than anyone else I know bar a couple of people. One is Colin Meech, UNISON pension activist and now advisor to the Shadow Pensions Secretary; another is David ‘Dan’ Norman, former fund manager and one of the liveliest and most entertaining speakers on the subject of undisclosed fund costs it has been my pleasure to meet. I met David in 2008. It was he who first told me about the layers of charging that intermediated a consumer from their retail fund investments – he called it the ‘ISA layer cake’ – and the terrible drain these sixteen (sixteen!) layers had on fund performance. I was impressed and from that conversation was borne my first foray into trying to assess

the real costs of fund management to the consumer. This was the paper that David and I co-wrote with five others for the Government Office for Science. Titled “Complexity and Intermediation in Retail Fund Management” the paper concluded that the real cost of retail funds to the consumer was way in excess of any headline fee suggested in the fund factsheets available to consumers, and this was

largely due to the complexity of intermediation. The economist John Kay echoed this complexity issue some two years later in his 2012 UK Equity Market review. But we were there first and actually put a value to the cost of this complexity. We concluded that the value, when some of the implicit charges were factored in, was a minimum of 3.1%. Some costs could not be

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determined at all and these would likely make it more expensive still. We called this hypothetical number the Total Cost of Ownership (TCO) and it was very far from the Annual Management Charge (AMC) or the Total Expense Ratio, the ‘TER’ (Total, what a misnomer) that were, and are still, the most commonly-used ways to describe costs. 3.1% or more. Let me explain what this meant: It meant that 3.1% of a consumer’s assets were eaten up by the fund management ‘industry’. This was shocking because the consumer was routinely led to believe that the only fee was the AMC and this was often in the order of much less than 1%; shocking because market performance, net of inflation, could be less than 3.1%. In other words, costs alone would eat up all performance. It was no surprise that we found examples of exactly this – individuals who had held funds for years and saw

no growth despite a positive market. Having submitted the paper, David and I were invited into the Treasury to meet with them and the FSA (at the time) who were interested and somewhat sympathetic. Sadly at that time the feeling was that there was no demonstrable ‘market failure’: There was no information asymmetry as fund data was readily available; there were no barriers to entry as new funds and fund managers were springing up all the time despite the financial crisis; and the sheer variety of fund managers and funds meant that there was a competitive and open market and no monopoly or oligopoly existed. David and I felt differently as there was an information asymmetry as consumers were basing their purchasing decisions on incorrect information, as the real costs of owning funds were not reported and the consumer was ignorant of

these real costs. This argument fell on largely deaf ears. And that is where the story might have ended…or perhaps not as I have a couple of serious character-flaws that, sadly and sometimes to my detriment, compel me: I am stubborn to the extreme and I am motivated by anger. Highly motivated in fact, and I was angry at what I felt was an injustice and miss-selling scandal of epic proportions. After all, retail funds at that time consisted of approximately £800 billion of consumer assets. Fortunately, what actually happened was the paper we wrote was passed on to a labour party activist who sent it to the Guardian. And so, on 16th December 2011, I received a phone call from a Guardian journalist (I think it was a senior editor) who wanted to learn more. I was, and to a certain extent still am, cautious around journalists. The article a journalist is writing, the hypothesis they are testing, is what drives them and if your agenda is not aligned with theirs it is easy to get into trouble. So, from the Dr Who exhibition at Earls Court, standing beside a Dalek, I declined to comment. The Guardian article was published anyway and from there things became interesting. Firstly, I was summoned into what was then the Investment Management Association (IMA) and told I was ‘completely

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ARTICLE: DR CHRISTOPHER SIER and utterly incorrect’ (euphemism). However, I sat there content in the knowledge that I must be doing something right for the IMA to be so rattled. Moreover, contentment became joy when I was asked why I was ‘ruining a fragile savings culture in the UK’ by discussing this stuff (I would like to point out here that I had actually refused to discuss it with the Guardian), most especially as ‘retail savings constituted a relatively small part of the UK savings market’? And right there, right then I remember grinning. Grinning so hard that my face hurt. Grinning because the disproportionate reaction of the IMA told me I was RIGHT, and now the IMA had also told me what I really wanted to hear: There was a bigger prize out there. That prize was pension funds. It crystallised for me very suddenly. If the costs of intermediation in the retail fund market were 3.1% or higher, how much would it be for pension funds, which have additional layers of intermediation and even less public information available and represented some £3 trillion of Asset Under Management AUM? I went back to base and started to look into the problem… and was stonewalled by every pension fund I contacted. I can’t blame them. Who was I, after all? Some lunatic asking prying questions about their costs? So, after a couple of

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months of this I sat down and had a long think and concluded I would only be able to obtain cost data from those pension funds that I could compel and that meant Freedom of Information Act FOIA requests and the public sector. So the first outcome of the Guardian article was that the IMA blinked first. The second was that I was invited in to speak to Gregg McClymont, then Shadow Pension Secretary, who promptly introduced me to Colin Meech. Colin’s first comment to me was “You’re brave. How’s your wife going to feel when they find you floating down the Thames?”. To be fair, that wasn’t quite what he said but decency prevents me from giving the exact quote. The point was it endeared him to me immediately. He spoke to me in a way I hadn’t heard for years, and not since I was a copper. He also won me over with his knowledge and insight. He knew, and still knows, his stuff. To be sure, his grasp of Labour and/

or Union meeting protocol is thorough and he has called me out for my ‘lack of respect’ on a number of occasions. But this wasteful (of brain space, in my opinion) knowledge is vastly exceeded by his knowledge of the DB pension space. So that’s how this all started. It’s how I fell into this murky world of opacity (not transparency – we are a long way from that state), and it’s why I became curious and, of course, angry. I’m setting this out for the record. I’m also setting it out because guess what? I’m angry again. Angry because since I first raised this, and even though we are finally starting to get some traction, we have wasted so much time. Eight years in fact. Eight years of lost cost savings gone. Eight years during which we might have significantly raised the values of funds in the UK. Let me explain this last point. Where costs are applied to consumer funds the only conclusion one can draw is that if you don’t have costs, you in

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fact have performance. Costs and performance (or revenue) are two sides of the same coin. To use a David Norman-ism ‘If you have two fund managers doing the same job, if one costs less then that fund manager leaves more in the pot at the end of the year’. In other words, for a given strategy and ability a cheap fund manager will perform better. At this point enter the investment management industry, which will say that no two fund managers are the same. Correct! Thank-you for making my point. A point proven by various researchers who have shown that for a given strategy or fund type cheap funds outperform expensive ones. The rule on average seems to be the best indicator of performance is not past performance but current cost. Again the industry will step forward and either politely, or angrily, explain that ‘net performance is what matters… performance net of costs’. My response is simple: “I don’t disagree, that IS what is im-

portant. And I don’t mind paying for high performance, but will you please tell me how much I actually paid?” And that is where the conversation falls apart because no-one, and I mean no-one, knows the complete true costs, or what I call the TCO. I know a lot more than almost anyone else, I promise you this – I’m swimming in numbers – but some of the intermediaries and what they are doing is so complex and the costs so implicit (and captured in valuation changes as opposed to direct quantifiable and invoice-able fees) and the means by which these costs are obscured so subtle, that no-one knows. I have many quotes that demonstrate this obfuscation beautifully, by the way; I keep a log of this sort of thing. So I don’t mind paying a high cost for high performance but at least do me the respect of telling me how much this is. After all there is no purchasing decision we make that does not involve knowing the price…except in financial services. We buy a sandwich “How much is that please?”. We buy anything and we look at the price tag and then shop around. It’s why Amazon is so successful. But we almost carelessly buy, or have people we ‘trust’ (let’s call them ‘Trustees’!) buy, services on our behalf about which we, and they (sorry folks, this is totally true), have almost zero

knowledge of the costs. Let’s be fair here – some Trustees do understand some of it, especially now. But many don’t or only know part of the story. And now something will happen that really, really, really grinds my gears. At this point the industry will start to say things like ‘no-one expects to know the full costs of owning a car do they’? However, we have warranties on products like cars that allow us to get a refund or replacement if they go wrong or if manufacturers are found to have lied about performance (as is being repeatedly shown currently). No such warranties exist in the fund management world. The next comment is usually something like ‘but when you buy a car you don’t expect to know how much money is made by all the participants in the value chain do you?’ Well, yes I do actually, but that’s because I’m that kind of person and the technology, distributed ledgers with blockchains, exists and it will allow this semantic content to be derived. But let’s forget my personal interests for a moment and accept the industry point that no-one really wants to know who makes what money where and it is really only the topline price that is important. Let’s agree on that point then that it is the topline price that is important… UNLESS the consumer realises that average compensation for an employee of a vanilla asset manager is £225,000. I’ll repeat that

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in case you missed it. The average compensation in an asset manager, from most junior and least paid employee (security guard, PA, clerk…) through to highest paid, is in the order of £225,000 per annum. This compared to the approximate £150,000 for the oil and gas industry, the £100,000 for the automotive industry and the sub£100,000 for the supermarket industry.

However, here’s the thing. If a fund manager or pension fund can make my money grow by a lot AND tell me how much I was charged I don’t mind paying £225,000 per annum, I really don’t. But neither happens, which is why most DB pension schemes are in deficit and why my own pension provider told me that the conservative estimate for growth on my pension fund was, wait for it, MINUS 1%. The longterm return of the FTSE is approximately plus 5%, and I’ve tried to invest in passive funds with my pension fund. So the implication of this mi-

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nus 1% is that my pension fund manager may eat up 6% of my assets to do the job of giving me access to the market, whilst paying themselves as individuals £225,000 per year. Must not lose temper…not lose temper…lose temper… AAAAAAAAAGGGGGGGHHHHHH! Don’t make me angry. You won’t like me when I’m angry. Now back to my point about costs and performance being two sides of the same coin. Here’s the thing you need to remember, and this is the thought that occurred to me way back at the beginning. At the point where David explained about the ‘ISA layer cake’ I realised that financial services, probably in its entirety, but definitely in its form of capital markets intermediation (a complicated way of saying ‘fund management’) is a ‘black box’. A ‘black box into which we cannot see and the contents of which, should we be able to see, ‘we wouldn’t understand. So complex are the contents of this black box that no-one can understand them and no-one can measure the costs by adding them up. To measure the total cost of the black box one needs to measure its external impacts and in no

place are these impacts felt more than in pension funds. Pension funds are the largest touch-point out there, so look at pension funds if you want to know how much capital markets actually cost. This is why pension funds are so important. Not only do they provide for us in our old age when we cannot work, they are the only empirical way we can understand how this ridiculously complex machine ‘we’ have ‘constructed’ works and costs. You need to bear a couple of things in mind about the black box though. The costs of the box are largely fixed and are mostly the same come rain or shine. Why do I say this? Well, only 20% of the cost of the box derives from the ability to generate positive performance, whilst 80% of the cost is just for being there and acting as our portal to capital markets. To translate, 80% of an asset manager’s annual fee is for holding money and only 20% of the fee comes from making funds grow. So even in a year of poor performance an asset manager can make 80% of what it might make in a good year (on average). The second thing to bear in mind is that the box only grows. It never shrinks. And it has grown a lot from when

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above about asset managers being rewarded mostly to manage rather than to perform.

my father was a pension fund manager. To quote my father, John Sier, “when I did the job if I didn’t get double digit returns for the fund I’d have people banging on my door.” It turns out that this was because he had an office that was accessible to anyone in the company for which he managed the fund, and also because he invested in ‘simple things’. He understood the companies in which he invested, he bought, he held, he minimized transactions costs (another quote from Dad “transaction costs can kill performance”) and didn’t invest in “complex things like derivatives”. So the black box only grows. Every time a new intermediary enters the black box the costs of that intermediary are passed along the value chain until they can go no further. And the place where they can go no further is the consumer and her or his pension fund. So what’s the point in all this? Why have I written this diatribe? Surely I haven’t written this ‘just for the record’ have I? Well, the answer is no. Last weekend I saw an article in

the times that showed how underfunded DB pension schemes are in the UK. How this underfunding is killing British industry, as potential corporate acquirers don’t want to be held responsible for these pension liabilities. It’s what killed BHS as no buyer could be found that was willing to shoulder the DB pension burden. When you are an estimated £207m underfunded on an asset base of £435m this means you have a 33% shortfall in value. This is the liability that any new acquirer of BHS would have to fund. De-risking the pension fund entirely by selling the liability to an insurer would cost over £500m! But what is really shocking is that the value of the fee derived by asset managers over the period of time from when the problem started (2007/8) to the current date, and regardless of performance of the pension fund, was almost fixed at 30bps. In other words, they always earned the same amount on a weighted basis regardless of how well they did – this plays to my point

So what is surprising to me is the call by Business Secretary Sajid David for an enquiry into the collapse of BHS with no consideration of the role of the Pension Fund Trustees, who allowed suppliers to carry on charging the same fees despite bringing the pension fund to its knees. This same problem of underperformance and underfunding is also what is freaking out the Unions and the UK Government. They have finally realised that the back stop for the underfunding on the UK Local Government Pension Schemes is the UK Government and also now, due to regulation changes, union members. This deficit is upwards of £50 billion…which is almost as large as the national deficit which stands at £70+ billion. So George Osborne’s headache is possibly twice as big as he thought and only from one £250 billion scheme that represents a small fraction of the UK pension market. By anyone’s standards it’s ‘brown trousers’ time. For the poor old consumer, the systemic upshot of underfunding is a move from DB to DC and now a loss of jobs; a world of certainty for the pensioner to a world

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of uncertainty; a world of employment to one where an additional 1,400 BHS employees are unemployed. What gets me though is that there may be another way to reduce deficits that doesn’t involve a stampede to DC, and ‘brown trousers’ only for the eponymous ‘£225k club’ as their salaries shrink, and that is to cut costs. Here’s the rub. To cut costs is to boost performance by an equivalent amount as I mentioned earlier. So cut costs by 1% and you boost performance by 1%. This doesn’t sound like much until you consider this performance increment occurs each year and every year that the costs are cut. Over 25 years this means a minimum 25% uplift in performance by doing nothing more than cutting costs by 1% of assets, and this is without any consideration of the effects of compounding. If we use the example of BHS this means that

in the eight years since I first started analyzing the costs of the UK pension industry the shortfall in funding on the BHS would be 10-15% lower…which may have made all the difference to an acquirer and 1,400 jobs would have been saved. Similarly, with the shortfall in funding of the Local Government Pension Scheme (LGPS) at 20% you can see that in a period of time less than the working life of one beneficiary this shortfall would be made up. So cut costs first and immediately. In fact if we had cut costs eight or so years ago, had I been successful in my attempts to bring this issue to the fore, we would already be more than halfway towards reducing deficits. I have no-one to blame but myself here. That’s actually how I feel. What could I have done differently to raise this issue? To whom could I have spoken? It makes me angry, it really does. Riddled with guilt am I. Finally then, to cut costs we need to know them. And for that reason ALONE we

need transparency. Please make this happen. No more excuses. No more obfuscation. Demand the data, publish the data and cut costs. Everyone will benefit: The financial services industry, so long now suffering from a terrible reputation, will have that reputation restored; the Government will solve a systemic problem for the UK by seeing pension fund deficits reduced; the Regulator, under pressure from having failed to prevent a host of egregious activities perpetuated by the financial services industry, will be seen to be doing the right thing; workers jobs will be protected; consumers savings will grow…the list goes on and on. I can see no reason why transparency and cost management in asset management and pension funds will not result in significant benefits to all stakeholders. I dare anyone to prove me wrong.

Chris is Professor of Practice at Newcastle University Business School, Co-MD of FiNexus, a knowledge-transfer and research organization, and advises the UK Government, Regulators and various trade bodies on pension fund Corporate Governance and Cost Transparency. Chris also advises a range of stakeholders including the UK Government on innovation and fintech. Previously he was Managing Director of KAS Bank UK, an Asset Servicing and Pension Fund specialist, and Director of the Financial Services Knowledge Transfer Network, a research, innovation and knowledge transfer organisation for financial services, bridging industry, academia and government. He has also held various strategy management consulting roles, starting as Associate at AT Kearney, ending as partner in boutique firm specialising in advisory to the Buy-side. In the dim and distant past he was a police officer in Edinburgh.

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Editor’s comment: Chris Sier’s contribution to the cause for greater transparency has already been immense, and there is even more to come. Just in case you’re not already aware, if it wasn’t for a meeting in December 2014 between Chris Sier, Con Keating and myself The Transparency Task Force wouldn’t even exist. Chris and Con’s sense of purpose around the need for greater transparency enthused me. I’ve never met anyone in business with Chris’ determination, forthrightness and sense of justice. To top it all his subject matter expertise is phenomenal. I couldn’t sleep that night and kept thinking about the conversation the three of us had had. I’d known Con for a while and already knew of his reputation for knowing everything, everybody and “telling it as it is” but had only met Chris the once. So I did some online research in the middle of the night to see if he was as genuine as he’d seemed. I read some articles he’d written and quickly concluded he was “a man on a mission”, that he was completely genuine and that he was wholly justified in demanding the consumer be treated respectfully, which is what our campaign for greater transparency is all about. I think Chris is the sort of person who just couldn’t stand by if somebody was being harmed; he’d stand up, and do whatever he could, without much thought to any down-side to him personally. I was once told that Chris was “the most hated man in the asset management industry”. I don’t know if that’s the case or not, but I do know this: he deserves to be one of the most respected; and when “the powers that be” eventually realise how he has been battling away for the consumer for eight years somebody, somewhere should formally recognise the part that he has played in forcing through the changes that are so obviously needed. If the changes that Chris wants happen the financial services sector will put an end to the shocking practices that have been going on for decades and the customer will start getting value for money. Those of us who were lucky enough to hear Chris speak at the April 2016 Transparency Symposium won’t forget his talk for a long time. If Johny Rotten is right when he says that “anger is an energy”, well that makes Chris one of the most energised people around - thank goodness for that - there’s a lot of what I’ll call for now “inertia in the system” to be overcome. Let’s see what the FCA do about that through their Asset Management Market Study...

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ARTICLE: DAVID PITT-WATSON

“SUNLIGHT IS THE BEST DISINF (William Douglas, US Supreme Court Justice 1939-75)

by David Pitt-Watson, Executive Fellow | London Busine

When I was asked if I would be an “ambassador” for the Transparency Task Force, I was delighted to accept. Because this group has a straightforward aim, and one which is central to ensuring that markets work and savers can get a good deal; that is to ensure that we know how much it is costing us to manage our pension and investments. Investment costs really matter. If you are charged 1% every year on your investment, that might seem trivial. But that 1% is charged every year. So someone who saves for a pension for their working life, and then draws down their pension over twenty years will lose 25% of their possible pension, if they pay 1% per annum in charges. 2% a year and half their pension will have gone.

tion. They had been told by their fund managers that the “headline charge” on their £25 billion of investment was about £75 million. But when Railpen investigated this, they discovered there were many other costs-of-trading, of “structured products” and layered charges.

And here is the unacceptable situation we find ourselves in. We aren’t told the full amount that is charged to our savings account. Much of it just disappears. But every now and again we get inkling, when committed people inquire into the matter. Railpen, the pension fund for the rail industry, and one of Britain’s best run funds, did its own investiga-

That, of course led to changes. Not that every high cost fund be abandoned, but that sensible cost/benefit tradeoffs be made.

This is a profound market failure.

But you should not need Railpen’s resource and expertise to know what you are being charged. Today, in the UK, people are offered a vast choice on where to invest their savings and pensions.

But how could this be? The market for investment products is quite competitive. Choice is abundant; on one estimate there are some 28,000 funds in which you can invest your pension.

These took the cost up to £290 million, nearly four times what they thought they were told they were paying.

David Pitt-Watson is a leading thinker and practitioner in the field of responsible investment. He is currently an Executive Fellow at London Business School. He is an ambassador for the Transparency Task Force. His book, co-authored with Stephen Davis and Jon Lukomnik, “What They Do With Your Money; How the Financial System Fails Us and How to Fix It” will be published in June. To find out more, visit: http://yalebooks.co.uk/display.asp?K=9780300194418

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Indeed “Freedom and Choice” is the government’s headline policy. But choice only works if you know what you are paying. And in the world of pensions and investment, we simply don’t know that cost. Indeed, a review of 170 academic and other articles by the Financial Services Consumer Panel revealed that huge gap in our knowledge. None of the articles had discovered the answer to the simple question of how much savers were being charged.

Comment from the Editor: David’s talk at the first Transparency Symposium in the World was highly impactful. As an Ambassador to the TTF he brings tremendous insight, wisdom and encouragement his support and input is priceless. Thank you David.

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FECTANT”

ess School How could this dangerous opacity have come about?

during the investment, when you withdraw your money. They can be levied as fixed payments, or as a percentage of your savings. They can be taken as spreads; that is the difference between the cost to buy and the revenue when you sell a security.

The answer, I think, lies in the incentives that the financial system or indeed any system offers. Colbert, who was Louis XIV finance minister, put it rather well in his observation about raising taxes. “The art of taxation” he observed, “consists in so plucking the goose as to obtain the largest amount of feathers with the smallest possible amount of hissing”. That is why we are reminded of “stealth taxes”; we don’t notice that they are being charged, and carry on regardless.

So complicated were these charges that when the Office for Fair Trading investigated, they reckoned that expert “Independent Governance Committees” should be set up by every significant pension company, to ensure that savers were getting a good deal.

In investment, the industry has followed Colbert’s advice. Rather than telling us how much it costs to trade shares, or swap currencies, rather than telling us that they have invested our money in other funds which will in turn be taking their cut, the money is simply taken from our account. The feather is plucked, but there is little hissing, because no-one told us that it had been removed. Be clear, it is not bad people who are doing this, everyone is doing it because they believe they will attract more investors if the costs are hidden.

Of course it is complicated to work out precisely what costs are.

And we should also be clear; it is not easy to discover, comprehensively, what costs are. There are all sorts of different ways in which charges can be levied; when you invest,

How many of them were able to discover what these hidden charges are, and published the results to savers? Not one. Not a single one.

But if we have a basic framework we can make huge progress. And once some costs are known there will be calls for more. Those who manage investments efficiently will prosper. Those who have found stealthy ways to pluck the goose will fall by the wayside. Markets will, at last, begin to work as they should. Freedom and Choice will not be empty words. Some of course, would say that since costs are just rolled up in investment returns, we don’t need to know them. But given the uncertainty and volatility of investment returns, there is little prospect of savers discovering what

has been taken from their account. And in any case you would always want them to know what those costs were. I can think of no other industry in the world which would withhold such information from their customers. This brings us back to Justice William Douglas, whose quote is the title of this article, and to the Transparency Task Force. Costs are perhaps the most important factor in choosing a standard investment product. Yet most of them are unknown. As a result, markets lack integrity; pensions are miss-sold; individuals suffer. The answer is transparency. As Douglas so aptly put it, “Sunlight is the best disinfectant”. One final quotation. This time from Margaret Meade, the American anthropologist. “Never doubt” she told us, “that a small group of thoughtful committed citizens can change the world; indeed, it’s the only thing that ever has.” And that is why I was so delighted to be an ambassador for this important initiative.

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ARTICLE: PAUL TRICKETT

INVESTMENT COSTS - WHAT WE by Paul Trickett, Chair | Railpen Investments Ltd

Asset owners need to have their assets managed and this is a service which needs to be paid for. Understanding what we pay for that service should be clear and straightforward. It is not in some circumstances and when you take the trouble to find out the true cost the results can be quite disturbing. This article relates to the experience of the Railways Pension Scheme in the UK. This is a multi-employer pension scheme with over 100 participating employers, 350,000 members and assets of about £23bn. This makes it a large scheme by UK standards but of only modest size in a global context. 4 years ago the Trustee of the Railways Scheme, along with its executive, began a process to review the way in which assets were managed. This became known as the Investment Transformation Programme. Its purpose was to review the way in which the Schemes assets were managed and to compare that to global best practice, the aim being to build an institution which could rightly lay claim to be a world class asset owner. The motivation for this was to be able to deliver members benefits both more efficiently

and sustainably The programme contained a number of stages:• establishing mission and goals • defining our investment beliefs • deciding on the right organisational structure • examining value chain issues - where do we get best value for members • designing the best fund structure to meet the risk return and liquidity needs of the scheme • implementing it all! The value chain issues have proved to be some of the most interesting and have raised many concerns about transparency. We wanted to understand how much we were paying for the existing asset structure which was all outsourced to over 50 managers including some exposure to private

equity and hedge funds, often via fund of funds structures. A simple task - simply add up the fees being paid and make some assessment for the performance fees that might be due. No one can complain about paying performance fees as after all these are only paid when performance is good and the structuring of the fees always ensures the interests of the manager and the client are aligned! In practice life proved much less simple, especially in relation to the private markets exposures that we had and seeking to determine the extent of the ‘carried interest’ charges that we would face. Carried interest means performance fee, I wonder if an industry with a real commitment to transparency would describe it as such rather than cloak it in mysterious terminology.

Paul Trickett is Chair of Railpen Investmnets Ltd, one role in a portfolio career that encompasses a number of board and trustee appointments   He was previously MD at GSAM, Head of Investment Consulting, EMEA at Watson Wyatt and CEO of the British Coal Pension Schemes

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E DON’T SEE Around 50% of private market fees were attributable to carried interest. A highly diversified portfolio of such exposures (via funds of funds for example) leads to paying higher fees on the portfolio as a whole. Sometimes the diversification argument proves not to work so beware the consultancy advice to carry on diversifying!

On top of this there are numerous fees which you pay as a limited partner in a fund about which you may not have full knowledge, such as audit fees, debt arrangement and bank fees. There are then fees paid by private equity investee companies to the General Partner which reduce the return on your investment - monitoring and consultancy fees for example, some portion of which might eventually find its way back to you as the investor and provider of capital. To get to the bottom of this issue we recruited someone to do the work to discover what we were actually paying After 18 months work we settled on a figure of costs for 2011 which were just

under 170 basis points of the fund. What was perhaps most staggering was that the indirect expenses (defined as those fees not invoiced to us), those which were not transparent and which had required all the effort to discover, were between 3 and 4 times the size of the direct manager fees. 20% of our assets gave rise to two thirds of our total costs with the majority of this related to hedge fund and private equity exposure.

In economic terms you could conclude that our agents were enjoying a high level of ‘rent extraction’ from the Scheme but it is not difficult to come up with more pithy descriptions of the situation. Obviously this was a call to action and a target was set to save £100m per annum on the fees being charged; 2016 should see us almost there. Think about the capitalised value of £100m per annum in a long term institution and you can see the benefit of greater transparency leading to better outcomes for members. But we need returns in order to deliver those member benefits, our target being to achieve RPI plus 4%. Private market exposures will continue to be important

for us as we seek the levels of return even as we look to rebalance the deal between ourselves and our agents. Our strategy to do this has been • Continue improvements to cost discovery, measurement and monitoring • Substitution • Internalise • Reduce exposures where suppliers have excessive bargaining power • Procurement • Be clear, to save everyone time So we continue to look at fees and seek to find out more. Information is the key to being able to take action. We ought not to have to look but we know that it is necessary. The hedge fund analysis we carried out showed we were paying very high fees for beta exposures. Hedge funds have largely left the portfolio and been replaced by what we call alternative risk premia (others might refer to them as smart beta exposures)

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ARTICLE: PAUL TRICKETT contracts in a positive way by obtaining increased transparency. So are we the only asset owner who did not know what they were paying? It seems not.

Here, costs are easier to understand and there are no 2 and 20 claims. Costs are in the teens of basis points and we are working to bring them down more. Some assets have been brought in house and more are likely to follow. This is still in the early stages and we are keen not to move too far too fast. However, the level of rent extraction with an internally managed portfolio is much lower and what it costs is much clearer. When managers have all the bargaining power we have decided we are unlikely to play the game. Our procurement process sets out a clear test. We expect to receive at least 50% of the

value add of an investment after paying the base fees. This test has never seemed to me to be particularly onerous and not very demanding on our part (I could easily feel we ought to get at least 70% of the added value) but it is surprising how often this test is not passed. Our new private equity arrangements are focused on market sectors where we can make a difference despite our small size, working with a limited number of partners who are happy to give us co-investment opportunities which dilute the costs of the investment. It is early days but this looks a promising approach and it gives us fewer of the issues we suffered from before. Using our capital in this way also gives us the chance to seek to influence

Last year you may have seen publicity about Calpers and the concerns over the scale of hidden asset manager fees. In 2014 the FT reported that transaction and monitoring fees in private equity deals between 2004 and 2013 in the US amounted to $28bn. It seems that 2 and 20 is just not enough! What do you need to do? The answer of course should be nothing - these fees should be transparent and then you could reach a judgement on whether they represented value given your objectives. Until we get to that state it probably makes sense to spend some time and money analysing what you are really paying. You may be in for a surprise.

Editor’s Comment: Paul and his colleagues at RPMI are helping to show the way for cost control. An awareness of the hidden costs they have managed to discover ought to motivate all pension schemes to appoint an individual to focus exclusively on driving up value through intelligent cost control. Paul is great to listen to, as those who were lucky enough to hear him talk at our April Transparency Symposiun already know. I suspect there is more best practice to come from RPMI that we’ll all benefit from. Also, I’m keen to get introduced to other schemes in the UK or overseas that have succeeded in increasing transparency, particularly around costs and charges. If you know of any other great examples please make me aware of them: andy.agathangelou@transparencytaskforce.org

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ARTICLE: MICHELLE BADDELEY

TRANSPARENCY AND COMPETITION

by Michelle Baddeley, Professor of Economics and Fina Built Environment, University College London The biggest financial news scoop in a while was the leak in April of the “Panama Papers” – the 11.5m files from offshore law firm, Mossack Foneseca, exposing widespread tax avoidance by a wide range of the world’s rich and famous. This whistleblowing scandal has re-opened public debates about transparency versus opacity in financial services sector. How transparent is the financial services sector as a whole? Do institutional investors collect and assess asset information objectively and impartially? If not, what are the implications for the industry as a whole, especially in terms of boosting effective competition? The Financial Conduct Authority (FCA) is keen to explore some of these issues. They want to understand how institutional investors (the asset owners that purchase asset management products and services) acquire, scru-

tinize and challenge investment investment management products and services and, in the case of pension funds, investment consultant recommendations, and they will release their Asset Management Market Study Interim Report in the summer. With Dr Anna Tilba, Lecturer in Strategy and Corporate Governance at the University of Newcastle Business School, I have been commissioned by the FCA to complement their

own research with an academic study of investment oversight committees, focusing on behavioural biases that may lead to investment decisions that do not deliver good investor outcomes. One of our themes will be information and transparency, not just poor information and uncertainty, but also asymmetric information. Asymmetric information is a problem endemic to much economic and financial decision-making where one party has more information than another, and exploits their information advantage opportunistically. It underlies what economists call “principal-agent” problems. What is a principal-agent problem? A principal hires an agent to perform a task – but because it is difficult and/or costly for a principal fully to monitor an agent, the agent can get away with behav-

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IN ASSET MANAGEMENT

ance

| Bartlett Faculty of the

iour that is not in the principal’s interests. The classic example is employer and employee. The employer (the principal) hires an agent (the employee). The employer wants their employee to work hard and to focus 100% of their time and energy to creating value/ profits for the employer. But the employer and employee’s incentives are not necessarily closely aligned. The employee may prefer to spend their time chatting with friends, online shopping or checking out Facebook, but monitoring this inefficient behaviour is costly for the employer. So unless the employer stands over their employee’s shoulder throughout the working day (which would be a very costly exercise), the agent can get away shirking. They can conceal information about their lack of effort, to the employer’s disadvantage. One solution is for the employer to align the employee’s incentives with their own incentives – e.g. via performance bonuses or share ownership.

In the institutional investment industry, the corollaries of principal-agent problems emerge in often complex forms. Ultimately the principals are the asset owners – for example, the pension holders, and their immediate agents are the pension fund trustees. The pension fund trustees hire their own agents to perform tasks – they want to create assets with lasting value but often they have little expertise in managing assets for themselves. So they hire an agent – or in the case of institutional investment – a series of agents – to manage their money. Ordinary people who want to invest in a pension delegate management of their pension pot to a pension fund, and the pension fund hires asset managers, and the pension fund may also hire investment consultants. So the nexus of principals and agents in the institutional investment industry is complex, and each agent in the chain wants to prioritise their own interests over those of the principal.

Because it is difficult and costly for the pension holder to monitor their agents’ activities, the value of pension pots can be eroded by the agents’ pecuniary interests, for example via excessive and/or complex costs and charges. Another issue we are keen to explore in our research is the problem of behavioural bias, and the related phenomena of groupthink and herding – all themes explored in growing literatures on behavioural economics and finance. Standard financial theory assumes that we’re all a little like mathematical machines. We process information in an objective and systematic way, and use this information to generate rational, objective decisions. Humans don’t (often) work this way in reality and we are all prone to behavioural biases, as explored by Daniel Kahneman in his bestselling book – Thinking,

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ARTICLE: MICHELLE BADDELEY excessively persuaded by consensus opinions, especially when we are unsure ourselves. We might be too influenced by an authoritarian or seemingly authoritative member of a group.

Fast and Slow. We over-weight information that is easy to remember; we are prone to making decisions on the basis of vivid, emotive information; we draw false comparisons; we anchor our judgements on old, inaccurate information or misleading social information about how others are deciding; and we are heavily influenced by peer pressure. In particular herding and other social influences have particularly powerful distorting impacts on rational

decision-making. Various experimental studies have found that a disproportionate number of people copy others’ decisions. This is not necessarily irrational because other people’s actions can be informative. If we see a very crowded restaurant next to a completely empty restaurant, we can reasonably assume that there’s something wrong with the latter. Often however, the group decision leads us down the wrong path. We are

Many experimental studies have shown that people, including experts, are disproportionately affected by groupthink. Social psychologist Solomon Asch conducted a series of experimental studies, now widely replicated, demonstrating that people asked to perform very simple tasks, e.g. judging the length of a line, can be persuaded to come up with a very wrong answer when they see a lot of other people making the same mistake. Group decision-making is pervasive within the financial services industry, including on institutional investors’ oversight committees. Understanding when, how and why people and committees are vulnerable to unfounded imitation

Michelle Baddeley is Professor of Economics and Finance at the Bartlett Faculty of the Built Environment, University College London. Previously she worked for almost 20 years as Director of Studies and Fellow in Economics at Gonville and Caius College, University of Cambridge. Her research explores a range of issues connected to behavioural finance and macroeconomics, and she works with experts from a range of disciplines, most notably her Leverhulme Trust sponsored research project with neuroscientists and experimental psychologists - which included an experimental analysis of jury deliberations and brain imaging studies of emotion and social learning in financial decision-making. She has published in a wide range of academic journals, is author of a number of books/ collected volumes, and is a regular book reviewer for the Times Higher Education Supplement. Her next books include Behavioural Economics: A Very Short Introduction (forthcoming Oxford University Press) and Copycats and Contrarians –When and Why We Herd (forthcoming Yale University Press). She is a member of the Transparency Task Force’s Costs and Charges Team.

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and groupthink is an important issue to identify and resolve. Addressing information principal-agent problems, and groupthink and herding are part of the solution, but an overall focus on reducing complexity and increasing transparency will have benefits too. Some argue that asking the industry to be more transparent is like asking

turkeys to vote for Christmas, but – in the long-term, the industry as a whole has much to benefit from building transparency and trust in their industry. As governments move towards giving pension holders more choice about how and when to spend their pension funds, ultimately pension-holders might decide that splurging their pensions on a new car or a good holiday is a better use of their money than investing

it in funds that give them no real guarantees of value over the long-term. As part of our research, Anna and I are conducting interviews, an online survey and some group decision-making experiments. If you would like to participate in our research, please feel free to contact us for more information: m.baddeley@ucl.ac.uk or anna.tilba@newcastle.ac.uk

Editor’s comment: Michelle spoke at our February Transparency Symposium, alongside her colleague and another leading academic in the pension scheme costs and charges space, Anna Tilba of Newcastle University’s Business School. Michelle has done a great job in her article here to highlight the importance of The FCA’s Asset Management Market Study, which is a wonderful opportunity for the UK market to finally deal with the lack of transparency and effective competition that is causing a great deal of reputational damage to the sector (as well as denying the Great British public the value-for-money they deserve). To put it bluntly, all market participants and all their trade bodies need to work together and commit to putting the customer first, just as Tom Tugendhat MBE MP has been campaigning for. Be sure to do your bit through the FCA’s research by contacting m.baddeley@ucl.ac.uk or anna.tilba@newcastle.ac.uk Thank you.

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ARTICLE: PETE GLANCY

TRANSPARENCY CAN ADDRESS THE CHA

by Pete Glancy, Head of Industry Development | Scottis

Asymmetric information exists when one party in a contract or transaction has more or better information than the other, creating a commercial advantage. In financial services we see customers having an advantage over lenders offering loans or mortgages, where the buyer knows more about their own likelihood of default than the product provider. Firms create sophisticated models and frameworks to help manage this risk at great expense. For savers however, the story is quite different, where firms have expertise in investments, contract law and pricing which the typical consumer cannot hope to match. Unlike large organisations, consumers don’t have the money, expertise or sophistication to build complex models and frameworks to help address the balance. This imbalance is compounded further by consumer apathy towards products such as pensions, which for some reason

they tend not to identify as being their own money. The Office of Fair Trading in their market review of DC Pensions in 2013 concluded that the pensions market did not work like a typical market due to the considerable level of apathy by customers towards the products which they hold. The market was therefore broken. Thinkers to the left of centre felt that customers would never be engaged. To fix a broken market, experts should be appointed to make decisions on behalf of customers (Trustees, Independent Governance Committees, Government interventions). Thinkers to the right of centre felt that the market could best be fixed by encouraging and equipping customers to take greater responsibility and

accountability for their own outcomes, leading to the sorts of commercial pressures being applied to firms which we see in markets where consumers are more actively engaged. At present it could be argued, that there are too many expensive people between customers and their money. We should be able to reach an end state where the pensions market functions in the same way as other more typical markets. This could require greater commoditisation of products and services. To get there we need 4 key ingredients; - Greatly simplify the products and services (including advice). - Greatly improve levels of transparency across the value chain (advice, products and funds). - Empower customers by improving levels of financial literacy, whilst making guidance and advice more intuitive and accessible. - Having empowered customers to make good decisions,

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ALLENGE OF ASYMMETRY

sh Widows we need to remove barriers to switching (between funds or products) by removing exit penalties and any clumsy or complex switching processes. Getting there could take many years, perhaps even decades, but that doesn’t mean we shouldn’t make a start. In the meantime, value should continue to be placed on the role played by Trustees, Regulators and Independent Governance Committees and we should look to continually raise standards there, in parallel. Transparency is one of the 4 key ingredients above and as this is the Transparency Times I’m going to focus here. Transparency across the value chain is at different stages in its evolution. Hard Disclosure in 1995 intro-

duced transparency to Contract Based Pensions under the FCA. The introduction of Stakeholder Pensions in 2000 added simplicity to the mix, when a complex array of charges, were replaced by a simple and single Annual Management Charge (AMC). Before 1995 a reduction in yield of 9% was not uncommon. The latest charges survey from the DWP shows that charges have fallen by over 90% since the introducing of simplicity and transparency. Alongside the fall in charges we have seen considerable consolidation amongst product providers in order to spread fixed costs and considerable automation of former manual processes to reduce transaction costs. Turning now to the front end of the value chain, where the Retail Distribution Review

effective from 1st January 2013 made adviser charges transparent for the first time. Some corporate advisers have seen income levels fall by up to 80% as explicit fees have replaced the much more opaque commissions. The effect of transparency here is less advanced than in the product space, but we already see the processes of consolidation and investment in technology to spread fixed costs and reduce transaction costs. It’s the back end of the value chain which remains most opaque. The disclosure of costs by asset managers is the least well developed. This is now the focus of Government and regulatory attention. If we can get to a point where customers can make sense of these charges and make a value for money assessment, we will start to see the sorts of commercial pressures on this

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ARTICLE: PETE GLANCY part of the value chain which we have seen elsewhere. As I have suggested above, it could be some time before the market is sufficiently evolved for consumers to use this type of information to make sensible decisions within the correct context. In the interim, Trustees and IGCs have a valuable role to play on behalf of savers. I don’t accept an argument that any elements of the value chain are too complex for consumers to understand. Consumers are perfectly capable of making value judgements in choosing between different makes of smart phone, without being experts in electronics, software development or cloud computing. The challenge is in packaging and presenting information in a way which makes sense to customers and doing so with integrity. To address this imbalance, we need to consider the challenge from both a micro and macro perspective.

At the micro level, the role of an industry regulator such as the Financial Conduct Authority is critical in ensuring that the relationship between individual savers and individual firms is balanced and fair.

challenge of the FCA, who act to ensure a fair balance is maintained between the customer interest and the commercial interest.

Having focused extensively on transparency at the micro level, I will now consider the macro perspective. At the macro level, Government departments (HM Treasury and the Department for Work and Pensions), need to work with regulators to ensure, that the framework within which customers and firms interact, maintains a balance which is fair.

Concerns remain in relation to some Master Trusts which have been established by commercial entities with a profit motive, where the regulatory framework has not been designed specifically to address the challenges of the asymmetry of information. In some arrangements the complex interaction between adviser, provider and asset manager adds to the obscurity from a customer perspective.

At present the asymmetry of information between firms and their customers creates an environment which would otherwise leave customers open to exploitation or excessive profiteering, were it not for the role performed by the FCA.

The Asset Management market review being conducted by FCA, and the cross departmental work, being undertaken by Government to look at transaction charge disclosure and the governance of Master Trusts, are opportunities to address market shortcomings.

Advisers, fund managers and pension providers operating Contract Based pensions are subject to the scrutiny and

Where there is a will, there is a way.

Pete has been with Scottish Widows for 25 years and has held many senior roles across the business. Most recently Pete spent 5 years as head of Individual Pensions before spending a further 5 years as Head of Corporate Pensions. Pete is presently Head of Industry Development where he is tasked by Lloyds Banking Group to work with industry stakeholders to help develop the pensions market for the benefit of its customers. Editor’s comment: In his article Pete has set out for us a tremendously helpful “birds eye view” of the regulatory changes that have been going on and a desired direction of travel, just as he did when he spoke at our Transparency Symposium back in February. I suspect that Pete is completely correct in highlighting the asymmetry of information issue as being something that simply must be tackled; and that it can be tackled through transparency. I really like the way Pete has challenged the idea that because everything is so complicated the consumer can’t understand it; the market has a responsibility to make the complex intelligible. Otherwise we’re just not treating the customer fairly, are we?

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ARTICLE: CATHERINE HOWARTH & RACHEL HAWORTH

A WINDOW OF OPPORTUNITY FO

by Catherine Howarth, Chief Executive & Rachel Hawor

The current policy environment is one of deregulation and individual fre sibility for making their own financial decisions, through schemes such world, pension savers tend to bear the risk and costs of investments. D schemes, since it is not the saver but the employer who chooses the p move to a different provider and receive little information about how the If savers are given the freedom they need to make their own pension decisions only at retirement, they will not have the understanding they need when they get there (and may well invest in that infamous Lamborghini). It is often argued that people are not interested in requesting or receiving information about their pensions. It is true that automatic enrolment was introduced as a response to widespread inertia. However, if existing evidence of poor member engagement is taken as carte blanche for failing to do anything to address the problem, it is difficult to see how anything will change for the better. Heineken’s DC Pension Scheme offers an interesting case study on this point. Following a concerted and innovative campaign in 2011 to inform members about the new scheme, 95% of employees signed up voluntarily, with 97% of those making an active investment choice.1 These are astonishing statistics given that in most schemes, roughly the same number of people do not make an active choice. The Dutch APG scheme provides colourful examples of how information provided to members can be

accessible and engagi environmental footprin investments, it describ savings as “equal to th consumption of all inha Utrecht” and water sav 10,000 Olympic swimm

A paternalistic approac is much less appropria than it was for DB sche

ShareAction believes empowered to see an sponsibility for what money, this will help of engagement with t timately lead to bette What is needed is hig ble information abou invested and an abili and key decision mak

Transparency around e the stewardship of thos ticularly important beca 2 https://www.apg. vvb-2014/1795?type=453

1 http://www.hrmagazine.co.uk/article-details/heineken-receives-95-voluntarysign-up-to-dc-pension-scheme.

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OR PENSIONS TRANSPARENCY

rth, Policy Officer | ShareAction

eedom. The Government is keen for savers to take personal responh as the tax-free cash lump sum on retirement. In an increasingly DC Despite this, savers are not treated as the customers of their pension pension scheme in question. Pension savers are usually unable to eir money is invested. most of the income that beneficiaries rely on in retirement. Furthermore, a responsible approach to the investment of pension savings aligns with the need for the industry to think and operate with a long-term focus.

ing. In relation to the nt of its real estate bes the fund’s energy he annual electricity abitants of the city of vings as the “size of ming pools”.2

ch to pension savers ate in the DC world emes.

s that if savers are nd take some rehappens to their to drive up levels the system and uler outcomes for all. gh-quality, accessiut where funds are ity to hold trustees kers to account.

equity holdings and se holdings is parause these generate .nl/en/publication/ 3.

ShareAction’s recommendation is that trustees should be required to make information available online in plain English about scheme equity and other holdings, and about the exercise of voting rights and other stewardship activities. This information should be updated regularly, perhaps every six months. To avoid putting an unreasonable burden on trustees, fund managers could be required to supply this information to trustees in short consumer-friendly reports that can be reviewed and then uploaded for the benefit of members. The new draft DC Code also proposed that trustees should assess members’ views on investment in order to increase levels of engagement. We fully support this development. Aviva, a leader in responsible investment and saver engagement, is currently considering holding an open annual meeting for members of its pension products following discussions with a motivated group of savers in its pension product range.

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ARTICLE: CATHERINE HOWARTH & RACHEL HAWORTH

industry. How can the industry stand to benefit from this change? The pensions and wider investment industry plays a vital role in providing businesses with the capital they need to succeed. They supply individuals with the income they need to live enjoyable and productive lives after they stop working. However, it is no secret that there is a profound mistrust felt by many consumers towards the financial services

It is seen as a privileged world inhabited by people making enormous amounts of money at the expense of savers’ long-term interests. This is particularly true of Generation Y (those born between 1980 and 2000), which is often described as having little interest in financial services or longterm saving. The 2014 Green Alliance report The future savings chal-

lenge3 found that “Generation Y is risk averse and financially cautious. This attitude is underpinned by a lack of trust in financial institutions and chronic financial insecurity… suspicion of investing is as significant as limited financial resources in determining their preference for cash savings products”. Transparency is an essential ingredient of trust. Ensuring savers understand where and how their hardearned money is invested will, in time, create a deeper and more genuine engagement with their own financial interests and the indus3 http://www.green-alliance.org.uk/thefuturesavingschallenge.php

Catherine Howarth, Chief Executive Catherine joined ShareAction in July 2008, having previously been the founder and lead organiser of West London Citizens. Earlier in her career she was Senior Researcher at the New Policy Institute. Catherine is a board member of Green Alliance and of the Scott Trust, owner of The Guardian, seving on the Scott Trust’s investment committee. She was a Member Nominated Trustee of The Pensions Trust (the multi-employer pension scheme for the UK’s not-for-profit sector) for five years until Spring 2013. She served for four years on The Pensions Trust’s Investment Committee. In June 2011 Catherine was named a ‘Rising Star of Corporate Governance’ by Yale University’s Millstein Center. In 2013, Pensions Insight featured her as one of the 50 most influential people in pensions and in May 2011 Investment and Pensions Europe called her one of the ‘top ten women in pensions’. Catherine was recognised by the World Economic Forum as a Young Global Leader in 2014. catherine.howarth@shareaction.org

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try which serves them. As this report points out, “Hundreds of thousands of people retire and cash in their pensions each year (over 400,000 people with defined contribution pensions buy annuities annually), and they need to be replaced with new savers.” For the pensions sector to prosper in the long term, it will be vital to rebuild trust. The Government can also greatly benefit from a move towards transparency. The Pensions Minister’s current priority is to ensure that as many people as possible are saving for a pension. Auto-enrolment is a significant and very positive step towards narrowing the UK’s shortfall in pensions saving (estimated by Aviva in 2010 as £318 billion, or £10,300 per adult annually4). However, as the 2014 Green Alliance report comments, “auto enrolment will be 4 https://www.aviva.com/ media/upload/Mind_the_gap_ regional_uk2010.pdf

highly unlikely to solve the Generation Y challenge. It is a largely passive process over which employees have little input or control and, hence, will do nothing to tackle entrenched negative attitudes towards the financial sector”.

advocating for refined regulation on these points. If you are persuaded by the need for greater transparency in pensions and the better saver outcomes this can promote, please get in touch.

Auto-enrolment has meant that young people are beginning to talk about pensions for the first time in a very long time. This is an opportune moment for those who wish to overcome Generation Y’s chronic lack of engagement with its financial future.

Editor’s comment: ShareAction have been doing an amazing job campaigning for pro-consumer change and I urge you to contact them (email addresses in bio’s) to add your support.

This article is a call to action. We believe that we can build momentum in this debate if voices in the investment industry co-sign a letter calling for greater transparency in the investments of our pension funds. We would welcome the support of subscribers to the Transparency Times in

There really is a wonderful window of opportunity for change, right NOW; let’s make the most of it!

Rachel Haworth, Policy Officer Rachel joined ShareAction in December 2015. She is working on ShareAction’s UK policy areas during Bethan Livesey’s maternity leave. She is also coordinating an outreach project with the legal community about the financial risks posed by climate change to pension funds and their members. She previously trained as a solicitor in the City of London. She holds a BA (Hons) in English from the University of Cambridge. rachel.haworth@shareaction.org | May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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ARTICLE: HENRY TAPPER

HOW CAN THE IGCs HELP CREAT by Henry Tapper, Founder | Pension PlayPen The Independent Governance Committee (and its baby brother the Governance Advisory Arrangement) are the FCA’s answer to the problems identified by the OFT in 2014. Memories can be short so let me remind you what the OFT said: “The buyer side of the DC workplace pensions market is one of the weakest that the OFT has analysed in recent years. Part of the reason for this is that most employees do not engage with, or understand their pensions. Pensions are complicated products, the benefits of which occur a long time in the future for many people”. The IGC is supposed to help make it easier for people to know what they are buying by

communicating to those investing in personal pensions through their employers (often as a result of auto-enrolment) whether they are getting value for money.

What’s value for money?

IGCs have spent most of the last 12 months trying to work this out and have come up with a number of formulas; The IGC of ReAssure (a company that looks after closed books) used an assessment based on the policy holders reasonable expectations. The trouble was they never published what these expectations might have been! The IGC of the Prudential (chaired by the former Chair of NEST) set the level of expectations at 3% pa above CPI (after charges). Other IGCs, notably L&G have been more ambitious and

looked to benchmark the value for money of their provider’s proposition with UK and international benchmarks. They have shown frustration at not getting the management information to properly measure the “money paid” for the “value given”. You can see why. In April 2015 the FCA issued a paper proposing a way of establishing what we are paying for our pensions and called for evidence, a year later and we’ve heard nothing. In a year’s time the DWP is supposed to be strengthening the charge cap on workplace pensions by a new all-inclusive formula. This project too seems to have run into difficulty. The first and most obvious way that IGCs can help with Transparency is to keep knocking at the FCA and DWP’s door and ask for clarification on how they should work out what we are paying for our pensions.

Henry Tapper is a Director of First Actuarial and a Founder of Pension PlayPen. He is an activist for good governance and dedicated to restoring confidence in pensions. He has worked for some time on improving the transparency of costs and charges in DC plans in the UK and has a wider interest in “value” especially value asset managers can create through good stewardship Henry bloggs at henrytapper.com a fantastic source of often-witty insight and analysis he sees social media as a key means to get messages out to the public. When he’s not at work he is on a boat in the summer and supporting Yeovil Town if its not.

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TE TRANSPARENCY? ments. It does sound obvious but actually most of us don’t have a clue what we really pay, having to make do with the published charges of the provider which may or may not cover the costs incurred in the management of the investments made on our behalf! So far I have read 16 reports from the IGC Chairs, all published this spring. The costs of these reports to the providers, who foot the bills, will have been high and though we don’t know how high, we can expect some value from that money spent. Which is why I have been reading and reporting on each report. If you’d like to read them for yourselves, or read my reports on them, you can do so by following this link; https://henrytapper.com/2016/04/07/iwanted-for-listing-igcgaa-chair-reports/ (which will also take you to a list of IGC reports).

Where’s value?

I have been quite tough on some IGCs for not properly looking at this question. Many of the Transparency Task Force Teams look at questions of value, I’m thinking particularly of the Stewardship Team which looks at how asset managers are exercising proper controls over our invest-

A recent report from ShareAction suggests that the Workplace Pension Providers, who choose the investments ordinary people can make, are not doing enough in this area. I’ve been disappointed that none of the IGCs have looked at this area properly.

What next?

The big issue is what happens with the Chair reports of the IGCs (many of which are well worth reading). Will they get read? Will people even know where to find them? We are waiting to hear from the Regulators how they intend to advertise the work of the IGCs and what the private sector can do with the information to help with the problem the OFT identified. I’m certain that we can do quite a lot! What’s needed is for an independent organisation that is trusted and not for profit, does work to both publicise the reports and help the IGCs in their second year to get better data both to work out value for money relative to their peers in the UK and international best practice.

The Transparency Task Force can help in a number of ways. The work we are doing on data, on investment consultancy, on stewardship and on international comparators is all grist for the IGC’s mill

and – if we can find an organisation capable of managing a benchmark service then we will have done a fine thing, not just for the IGCs but for the people at the end of the supply chain, the beneficiaries of our workplace pensions, What next? A lot of hard work and some tough decision making to make this happen!

Editor’s Comment: Henry has provided a timely reminder of the Office of Fair Trading’s assessment of the DC workplace pensions market, and his analysis of the IGC reports has highlighted several issues, some of which are a real concern. As Steve Webb put it at our last Transparency Symposium “Henry reads these things so you don’t have to” and his drive for value is exactly what’s needed. If you’re not accessing henrytapper.com you’re missing out. | May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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ARTICLE: GEORGE LATHAM

BUILDING LONGER TERM RELATIO

by George Latham, Managing Partner and Chief Investm

The Financial Services Industry remains one of the least trusted sectors of the economy around the world1 1 Source: 2015 Edelman Trust Barometer. The investing public assumes that financial services industry is out to get rich at their expense, rather than providing an important service to the economy and the needs of savers. The problem of an asymmetry of information in the

agent-principal relationship between investment intermediaries and their clients can be exploited by the agents in the value chain: clients think they are having the wool pulled over their eyes and quite often are. In the long-run everyone

suffers from this situation. Investment companies suffer from a low-level of client loyalty and relationship longevity is damaged as a result. This contributes to the pressure on fiduciary clients to use short-term benchmarks to measure performance and the complaint from fund managers of asset-owner short-termism. In retail markets, many are simply put off investing at all. Transparency is not a panacea of a solution to the trust problem, but the famous quote form US Supreme Court Justice Louis Brandeis that “Sunlight is the best disinfectant� seems apt in the circumstances. WHEB Asset Management is a specialist fund management business focussed on a single Sustainable Investment strategy. Our aim is to generate superior returns from global equities by investing in companies providing solutions to some of the most serious environmental and social challenges facing mankind over the coming decades. Our mission is to advance sustainability and create

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ONSHIPS WITH CLIENTS

ment Officerm | WHEB prosperity through positive impact investments. With this singular focus, and our objective as a partnership to build a business for the long term, transparency is a subject that is close to our hearts. We are committed to operating a transparent and accountable business for reasons of both principle and profit. On principle because we ask our investee companies to operate to certain standards and we therefore believe that we should hold our own business to the same standards. And we ex-

pect to profit because trust is an extremely rare and valuable asset in the financial services industry. If we can foster a deeper relationship with our clients with trust at its core, then this is likely to result in a longer term and more resilient customer base, and hence a more successful and valuable business. There has been much focus in recent times on improving transparency around fund management fees and costs. We fully support moves to improve fee disclosure, and it feels like improvements have

been made over the past few years, and moves are in train to make further advances. However, fees are not the only part of the investment industry that have historically been opaque and at WHEB we have looked to break new ground in other areas. There is relatively little independent governance of retail investment funds in

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ARTICLE: GEORGE LATHAM the UK. Funds have trustee boards, but these are typically buried deep within custodian banks and operate in a removed and mechanical fashion. Having managed OEIC funds for nearly 20 years, I’ve never met a trustee, nor am I aware of any other fund manager meeting one. So what mechanisms are in place to ensure a fund is managed consistently with the strategy that has been set out to clients? We have established an independent Investment Advisory Committee staffed with experts in the field which meets with WHEB’s team three times a year, and part of their brief is to challenge whether every holding in the portfolio meets the criteria of providing a ‘Solution to a Sustainability Challenge’ as well scrutinising consistency in the team’s actions with our investment process and philosophy. We then publish the summary minutes of this meeting which is available for anyone to read on our website. Most fund managers publish their top ten holdings, but in many cases it is hard to find out exactly what the rest of the

portfolio is invested in. We publish a full list of companies held in the FP WHEB Sustainability Fund on our website, updated three times a year together with a short description for each company explaining why it fits in our investment themes. We also publish on our monthly factsheet a number of the parameters that clients should expect the fund to adhere to, such as an average holding period. We show the expected value, for example an average holding period of 3 - 5 years, and we show what the actual result has been, 4.9 years in the most recent period. This kind of transparency works to impose a level of discipline on the investment team to be consistent, whilst not preventing deviation if it is explained. Our clients are interested in how we act as sustainable and responsible investors, so we are a signatory to the UK Stewardship code and publish a quarterly report detailing our engagement and stewardship activities and our full voting records. We also publish an annual ‘Impact Re-

port’ in which we measure and report the social and environmental impact of the fund. Companies we invest in (and some fund structures, for example investment trusts) hold an annual general meeting at which their shareholders have a chance to hold management to account and ask questions in an open and public forum. This kind of access is typically not open to investors in retail funds. We feel it should be and therefore hold an annual client conference at which all investors in the fund are able to ask questions of the team in an open conference. For the past three years we have been a signatory to the EUROSIF Transparency Code, which sets out a standard for transparency for fund managers providing sustainable investment strategies. Only 6 fund managers in the UK meet this benchmark, compared with 50 signatories across Europe. The requirements proposed by this code are not just relevant to sustainable funds, but could be a model for the broader investment industry.

George is responsible for management of WHEB’s Listed Equity business. As CIO he is responsible for overseeing the investment process and chairing the Investment and Risk Committee.  He also plays an active role in business development and oversees institutional client relationships. Prior to joining WHEB, George led the award-winning SRI team at Henderson Global Investors. During his fifteen years managing UK and panEuropean equity and managed funds, George has been awarded ‘A’ and ‘AA’ Citywire ratings, nominated for Investment Week’s Fund Manager of the year and named in Citywire’s top 100 managers in the UK. He was also responsible for designing and launching Threadneedle Asset Management’s sustainable and responsible investment strategy. George has a degree in Geography from Oxford University, and served as a British Army Infantry Officer, and holds UKSIP qualifications.

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Some of the initiatives listed above might sound obvious and routine to the man on the street, but for many in the investment industry these are radical moves and are anything but commonplace. Are there risks from our approach? Some would argue that we are giving up some of our intellectual property by publishing what we own, but I would say that our IP runs rather deeper than the name and a short description of why we own it. Perhaps we give competitors and others ammunition to attack us with if we make mistakes. This is perhaps more difficult. We don’t expect to get every investment decision right, but we should be confident enough to talk about where investments haven’t worked out the way we hoped they would. But certainly this is an area where we expect the playing field will steadi-

ly level over time if industry standards of transparency start to improve in the way we believe they should. In our view the need for greater transparency and open-ness relates to the whole investment industry, and not just within funds that have a focus on sus-

tainable and responsible investments. From experience we are confident that we have stronger relationships with our clients as a result of being open with them, so we do this from a commercial point of view and expect our business to benefit over the longer term.

Editor’ Comment: What’s really great about this article is that it shows asset managers can develop propositions that are completely clientcentric, and can make full use of transparency as a commercial virtue. George’s article makes those points really well, just as his colleague Seb Beloe did at our last Transparency Symposium. A couple of questions come to mind though: Why are so few UK asset managers signed up to EUROSIF’s Transparency Code? And what will the FCA Asset Management Market Study do about their apparent concerns regarding the unusual challenges smaller asset managers face gaining market share?

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ARTICLE: DAVID RICH

TRANSPARENCY: GONEAWAYS AND

by David Rich, Chief Executive Officer | Accurate Data S

With the financial services sector increasingly in the spotlight around the issue of transparency, it is timely that the FCA recently announced the findings of their review of closed life books. www.fca.org.uk/your-fca/documents/thematic-reviews/tr16-02 This review has sent shockwaves through the industry and has far wider implications than those affecting the closed life book holders. And there is a strong possibility that many of the findings around transparency on costs, charges and unclaimed assets will be replicated in the current FCA review into asset managers. The problem of unclaimed

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assets is not new. Some may consider it is not a problem at all given the limited transparency around it. The FCA closed life book review identified between ÂŁ10 and ÂŁ20 billion of unclaimed assets. However, the numbers are vague and in some camps there is a reluctance to even look into the issue to try and quantify it. This lack of transparency is prevalent throughout the financial

services sector, and many firms have no regular process in place to deal with the situation. Unclaimed assets should be with the customer but for a variety of reasons customer contact has been lost and the asset holder does not know where the customer is. There is much debate at the moment around treating customers fairly. Whilst a major focus is on charges, it

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D UNCLAIMED ASSETS

Services Ltd is only right that the ultimate outcome of the customer receiving the assets they have purchased is delivered and at the intended time. In 2010 the Pensions Regulator issued guidelines around customer address data and how to prevent goneaway customer situations. http://www.thepensionsregulator.gov.uk/guidance/guidance-record-keeping.aspx The FCA closed life book review went much further in issuing expectations on proactively identifying goneaway customers and taking remedial action on an ongoing basis. Somewhat surprisingly the FCA did not issue a requirement for annual reporting of unclaimed asset volumes and values but there is a strong chance that this will become a requirement in near future.

service providers was not high on their list of priorities. Around 500,000 people die in the UK every year. Last year 250,000 people married and 100,000 divorced. All these events give rise to address and name changes. For those diligent customers who did notify their providers of a change in address or circumstances there is still a strong possibility that their details may not have been fully updated across all policies held as few providers have successfully adopted a single customer view. Whilst disconnect is inevitable it can be rectified. The Pensions Regulator, the Tax Incentivised Savings Association, British Standards Institute and now the FCA have all given clear guidance on what

they expect by way of data quality and steps to be taken to ensure data accuracy, minimising the volume and value of unclaimed assets. In December 2015 the Dorm

The problem of disconnect between customer and asset is difficult, if not impossible to totally avoid. Last year approximately six million people moved home. Only one million registered their change of address with the Post Office forwarding service. As the remaining five million did not attempt to have their post redirected it is likely that writing to their financial | May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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ant Assets Commission was launched. This new commission is looking to expand on the Dormant Accounts Scheme and to take control of unclaimed assets and distribute them to good causes, potentially via the National Lottery. www.gov.uk/government/ news/dormant-assetsworth-up-to-1-billion-set-torevolutionise-charity-funding

Few customers would consider it fair treatment to have an asset that is due to them passed over as an unclaimed asset without all steps having been taken to re-engage with them. Costs and charges may be something hard for the consumer to fully grasp, but the concept of a company sitting on an asset that should be with the customer because they have lost

contact is something the consumer will understand and see as totally unjust. The financial services sector is already suffering from a poor public image and lack of consumer trust. Failure to address the transparency issue as it relates to unclaimed assets can only exacerbate the situation. Will this be the next public scandal?

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 the Head of data quality on the national steering committee of Friends of Auto Enrolment, a a member of the TISA Data quality executive committee and a data panel member of The Transparency Task Force. David is an active campaigner for transparency and action around the large unclaimed assets issues present in the UK. Editor’s comment: Oh my goodness - so here we have a risk of yet another public scandal. That’s obviously the last thing any of us want. The good news is that it seems like it’s not too late to avoid the worst case scenario actually happening - it will be interesting to see what the relevant regulators, established trade bodies and professsional associations do about this. I’m more than a tad concerned about the potential conflicts of interest that might get in the way of the problem being solved. Thank you David for alerting us to this issue.

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ARTICLE: GUY SEARS

THE ROAD TOWARDS ENHANCED TRANSPARENCY by GUY SEARS, INTERIM CHIEF EXECUTIVE | THE INVESTMENT ASSOCIATION Transparency has become a key theme for journalists, regulators and governments in recent years when it comes to the costs associated with making an investment. In this area, criticism is levied at regulators and product providers. Both are sometimes accused of not clearing up supposedly ‘murky’ charging structures and, in some cases, it seems they are charged with actively ‘hiding’ costs from end investors. We reject this characterisation and have welcomed the opportunity to engage openly and constructively with all those in this debate, including the Transparency Task Force. Indeed, the Investment Association has taken a range of important, practical steps to ensure that disclosure is enhanced. We recognise that improvements can and should be made and continue to lead the way in terms of practical proposals. IA core beliefs Our core belief is that information provided to clients – whether institutional or retail – should be as consistent and meaningful as possible. It should also allow investors to see both product charges levied by fund manag-

ers and trading costs incurred as part of the process. In this regard, we have laid out a framework that could be followed not just by fund and asset managers, but throughout the distribution chain, including by pension providers. The latest work started back in 2012, when we published enhanced disclosure guidance for fund charges and costs. The 2012 guidance significantly improved the clarity and level of information on transaction costs (brokerage, taxes and spread) available for clients, alongside advocating the industry’s use of the Ongoing Charges Figure (OCF) rather than the less comprehensive Annual Management Charge (AMC). The OCF also

benefits from being an intuitive term, doing what it ‘says on the tin’. Through 2013 and 2014 we delivered a game-changing framework which enables the publication of a complete and historical account of the costs incurred per unit of a fund in pounds and pence. This new structure for cost disclosure, codified in the FCA handbook, covers every single penny spent by a fund including manager’s fees, other operational costs and all dealing costs and stamp duty paid when a manager buys and sells holdings within their portfolio. But clearly there are costs experienced in the investment process that are not monies paid explicitly to or by fund manag-

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ARTICLE: GUY SEARS ers, but which occur in markets as part of the trading process: these are the implicit costs of bid-offer spreads imposed by banks and other intermediaries across all markets. As the journey continued to progress, we published in 2015 a paper that looked both at how these implicit costs could be expressed and how a Portfolio Turnover Rate (PTR) can be more accurately calculated. PTR is a tricky metric to get right, and to date we have seen no other paper in the UK that explores the issue and comes up with a recommended methodology based on empirical evidence. Joining up for consistency At the same time, the regulatory environment is moving on quickly - both at UK level (the FCA/ DWP Call for Evidence on disclosure of transaction costs) and at EU level (MiFID and PRIIPs). Our 2015 paper was intended to answer some of the challenges emerging both through the UK and EU initiatives. Importantly, it also set out a proposed framework for satisfying both in a consistent manner through a new generation of disclosure codes. We recently started work on the delivery of these disclosure codes - after a delay attributed by some to foot-dragging on the part of the industry. The timing was in fact determined by a

desire to have a consistent client disclosure across all markets we serve. It made little sense to start designing a framework ahead of firm indications, whether from the FCA or from the European authorities, about the direction of travel. Neither customers nor the industry will benefit from multiple and incompatible systems of disclosure. Now that some of those indications are better apparent, we are moving ahead. Again, I am pleased to see a strong alignment in thinking between The Investment Association and a wide range of players, including the Financial Services Consumer Panel. We now stand on the verge of creating a framework that will use the same language and definitions across the asset management market. Keeping the KIDs on track However, there are still significant challenges ahead in ensuring that disclosure is both consistent and meaningful. The proposed PRIIPs rules about how product charges and performance are to be presented in the new Key Information Document (KID) are areas where we think more work is needed to provide clients with the most informative data and enable the best outcomes. We are surprised to see that the rules seem to suggest a move away from use of the OCF, which we believe is the best measure as it provides investors with a clear and comprehensive indication of what they will be charged by all the parties involved in running a fund. We are also puzzled – as are EU consumer groups – about the absence of performance information in the new KID. As an industry that is used to warning investors that the past is no indicator of the future, we

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fear that the proposed methodologies for calculating the forward-looking performance scenarios based on past performance could hamper investors’ ability to make the best decisions. Next steps Looking ahead, the investment industry is united in bringing greater clarity to the way costs and charges are expressed to its clients. The new disclosure codes offer an unprecedented opportunity and one that we are seizing. However, transparency is no panacea either. The debate also needs to look at value for money through the optic of delivery and client outcomes. Fund management is an agency business: looking after other people’s money. There is nowhere to hide from your ultimate investment performance.

Guy Sears was made Interim Chief Executive in October 2015. He has a wealth of experience in the industry, having been at the Association for over eight years leading on the regulatory, operational and legal issues affecting asset managers and funds. He is also Chair of the UK’s Joint Money Laundering Steering Group. Previously Guy was Deputy Chief Executive at APCIMS and worked at the SIB and FSA. He qualified as a Solicitor in 1987. Guy also served as a director of his local credit union.

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Editor’s comment: The Transparency Task Force recognises the tremendous potential the Investment Association has to help drive up the levels of transparency within the UK’s asset management industry. We look forward to continued constructive dialogue with the Investment Association and we think their Statement of Principles are excellent. The first of these Principles, to “Always put their clients’ interest first and ahead of their own” is a tenet that the entire pensions and investment sector should sign up to. Essentially it is exactly what Tom Tugendhat MBE MP has been campaigning for. If the FCA agree with both Tom Tugendhat MBE MP and the Investment Association on this point then it seems to me that no representative organisation would attempt to block such a reform - so hopefully it will be a “done deal” that the FCA could use that Principle or something similar as a key component in a much-needed pan-industry code of conduct, or set of guiding principles or rule book. Let’s see if the FCA suggest something along these lines in their Asset Management Market Study’s Interim Report that is due out very soon. If they do I’m sure our members will support it. In so many ways the Investment Association are the custodians of the UK’s asset management industry’s brand and reputation. Their 30 or so members that signed up to their Statement of Principles are leading the way within that organisation - they should be applauded for any and all attempts they are making to introduce the changes needed. We’ll do all we can to help publicise progressive and best practice in the asset management space, as per the article by WHEB; if any other asset managers have a good, pro-consumer story to tell in relation to transparency on costs and charges and/or putting customers first please do get in touch - we are completely on-side with you. Overall, I’m hoping that if good progress is made on this front by the Investment Association and their members it will surely help to begin to repair the reputational damage suffered by their sector for many years. We are happy to help and support The Investment Association and their members with such challenges as best as we can and are already working on an initiative that we hope will help with the asset management sector’s image/reputation/brand problem - get in touch if you’d like to know more through andy.agathangelou@transparencytaskforce.org Guy Sears spoke at our Transparency Symposium in February and Jonathan Lipkin, their Director, Public Policy is speaking at our next one on 22nd June. Hats off to the Investment Association for continuing to engage with us, so a great big “thank you” to the Investment Association.

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ARTICLE: PRESIDENT BARACK OBAMA - from official White Hou

Fact Sheet: Middle Class Economics: Strengthening Retirement Security by Cracking Down on Conflicts of Intere

by BARACK OBAMA, PRESIDENT | THE UNITED STATE

“For Americans who are doing the hard work of saving for retirement, let’s make sure that they get a fair deal.” President Barack Obama, White House Conference on Aging, July 13, 2015 Middle class economics means that Americans should be able to retire with dignity after a lifetime of hard work. But today, the rules of the road do not ensure that financial advisers act in their clients’ best interest when they give retirement investment advice. Instead, some firms incentivize advisers to steer clients into products that may have higher fees and lower

returns. These conflicts of interest in retirement advice cost America’s families an estimated $17 billion a year. That’s why today, at President Obama’s direction, the Department of Labor (DOL) is finalizing a rule and related exemptions to ensure that retirement savers get investment advice in their best interest, so they can grow their nest egg and be better prepared for retirement.

These rules will save affected middle-class families tens of thousands of dollars for their retirement over a lifetime of savings. And they’ll level the playing field for the many good actors, so that retirement advisers will compete based on the quality of advice they give. Since DOL issued its first proposal in 2010 and its second proposal last April, the Administration has received extensive feedback from industry, advocates, Congress, federal and state regulators, and others. The rule being released today reflects this input and is better for it. DOL has streamlined the rule and exemptions to reduce the compliance burden and ensure continued access to advice, while maintaining an enforceable best interest standard that protects consumers. Today’s announcement is another critical step in the President’s ambitious effort

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use press release dated 6th April 2016

: y est in Retirement Savings

ES OF AMERICA to put in place the strongest consumer protections in American history, while fighting back efforts by Wall Street and their allies to hinder the progress we have made. These new retirement protections add to stronger rules of the road for mortgages, credit cards, and student loans, among others. Conflicts of Interest in Retirement Advice Are Hurting the Middle Class. The White House Council of Economic Advisers (CEA) finds conflicts of interest lead, on average, to: o 1 percentage point lower annual returns on retirement savings. o $17 billion of losses every year for America’s families. President Obama Is Cracking Down on Conflicts of Interest. Today, the DOL is finalizing rules requiring retirement investment advisers to meet a “fiduciary” standard—putting their clients’ best interest before their own profits.

These reforms will save affected middle-class families tens of thousands of dollars in retirement savings over a lifetime of saving and level the playing field for the many financial advisers who are already doing right by their clients. Final Rule and Related Exemptions Reflect Significant Changes Based on Comments Received. Following its proposal in April 2015, DOL conducted a comment period lasting over 5 months and received extensive feedback through 4 days of public hearings, over 3,000 comments, and more than 100 meetings. Based on this input, DOL has streamlined and simplified the rule to minimize the compliance burden and ensure ongoing access to advice, while maintaining an enforceable best interest standard that protects savers.

benefit plans to self-directed IRAs and 401(k)s. These changes have increased the need for good retirement advice, yet until today the ERISA rules governing retirement investment advice had not been meaningfully updated since 1975. While many investment advisers acted in their customers’ best interest, not everyone was legally obligated to do so. Instead, the broken regulatory system had allowed misaligned incentives to steer customers into investments that have higher fees or lower returns - costing some middle-class families tens of thousands of dollars of their retirement savings.

Conflicts of Interest in Retirement Advice Cost Savers Billions of Dollars. Since Congress enacted the Employee Retirement Income Security Act (ERISA) in 1974, there has been a dramatic shift from employer-sponsored defined

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ARTICLE: PRESIDENT BARACK OBAMA - from official White Hou Analysis by the President’s Council of Economic Advisers last year showed that:

Rule Ensures Retirement Savers Get Advice in Their Best Interest.

• Working and middle class families receiving conflicted advice earn returns roughly 1 percentage point lower each year (for example, conflicted advice reduces what would be a 6 percent annual return to a 5 percent return).

Today’s rule and related exemptions will ensure retirement savers get advice in their best interest, while minimizing the compliance burden on the many advisers who already put their clients’ best interest first. The rule defines fiduciary investment advice, while the accompanying exemptions allow advisers and their firms to continue to receive most common forms of compensation if they put their clients’ best interest first.

• An estimated $1.7 trillion of IRA assets were invested in products that generally provide payments that generate conflicts of interest. Thus, CEA estimated that the aggregate annual cost of conflicted advice is about $17 billion each year. • A typical worker who receives conflicted advice when rolling over a 401(k) balance to an IRA at age 45 will lose an estimated 17 percent from her account by age 65. In other words, if a worker has $100,000 in retirement savings at age 45, without conflicted advice it would grow to an estimated $216,000 by age 65 adjusted for inflation, but if she receives conflicted advice it would grow to $179,000 - a loss of $37,000 or 17 percent.

The rulemaking package also includes a regulatory impact analysis outlining the monetary harm caused to retirement investors from conflicted advice and the expected economic impacts of the rule. The rule requires more retirement investment advisers to put their client’s best interest first, by expanding the types of retirement advice covered by fiduciary protections. Today large loopholes in the definition of retirement investment advice expose many middle-class families, and especially IRA owners, to advice that may not be in their best interest. Under the rule, any individual receiving compensa-

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tion for making investment recommendations that are individualized or specifically directed to a particular plan sponsor running a retirement plan (e.g., an employer with a retirement plan), plan participant, or IRA owner for consideration in making a retirement investment decision is a fiduciary. Being a fiduciary means that the adviser must provide impartial advice in their client’s best interest and cannot accept any payments creating conflicts of interest unless they qualify for an exemption intended to assure that the customer’s interests are protected. This change expands protections to IRA owners and people rolling over their savings into an IRA from a 401(k), who now must receive investment advice in their best interest. The rule clarifies what does and does not constitute fiduciary advice. The rule includes examples of communication that would not rise to the level of a recommendation and thus would not be considered advice. It specifies that education is not included in the definition of retirement investment advice so advisers and plan sponsors can continue to provide general education on retirement saving without triggering fiduciary duties. The exemptions will allow firms to accept common types of compensation –

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use press release dated 6th April 2016 like commissions and revenue sharing payments – if they commit to putting their client’s best interest first. Under the best interest contract (BIC) exemption, firms (and their individual advisers) can continue to receive most common forms of compensation for advice to retail customers and small plan sponsors to invest in any asset so long as the firms: o Commit the firm and adviser to providing advice in the client’s best interest, charge only reasonable compensation, and avoid misleading statements about fees and conflicts of interest. o Adopt policies and procedures designed to ensure that advisers provide best interest advice, and prohibiting financial incentives for advisers to act contrary to the client’s best interest. o Disclose conflicts of interest. The firm must direct the customer to a webpage disclosing the firm’s compensation arrangements and make customers aware of their right to complete information on the fees charged. The final package also revises existing exemptions, including limiting the so-called “insurance exemption” to recommendations of “fixed rate annuity contracts.” To sell other insurance products like variable and indexed annuities, firms can use the BIC exemption. New preamble language emphasizing that fees are not the only factor in making investment decisions

and giving firms more flexibility on how to comply with disclosure provisions should also make it easier for insurance firms to recommend their products. The rule and exemptions ensure that advisers are held accountable to their clients if they provide advice that is not in their clients’ best interest. If advisers and firms do not adhere to the standards established in the exemption, retirement investors will be able to hold them accountable - either through a breach of contract claim (for IRAs and other non-ERISA plans) or under the provisions of ERISA (for ERISA plans and participants). Final Rule and Exemptions Contain Significant Changes Based on the Feedback Received. In addition to the public input on its 2010 Proposal, following its proposal in April 2015, DOL conducted a comment period lasting over 5 months and received extensive feedback in 4 days of public hearings, over 3,000 comment letters (as well as over 300,000 petitions), and more than 100 meetings with stakeholders. Specifically, among other things, the Department has: Further clarified what con-

stitutes fiduciary advice. The final rule defines a variety of investment education activities that fall short of fiduciary conduct, and makes clear that advisers do not act as fiduciaries merely by recommending that a customer hire them to render advisory or asset management services. The final rule also expressly provides that investment advice does not include communications that a reasonable person would not view as an investment recommendation, including general circulation newsletters, television, radio, and public media talk show commentary, remarks in widely attended speeches and conferences, research reports prepared for general circulation, general marketing materials, and general market data. Under the final rule, all appraisals (as opposed to just ESOP appraisals in the proposal) will not be considered advice for purposes of this rule but will be reserved for a future rulemaking.

Made best interest contract (BIC) exemption available for more advice. Comments expressed concerns that advisers and

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ARTICLE: PRESIDENT BARACK OBAMA - from official White Hou firms could not take advantage of the BIC exemption if they were recommending proprietary products. Additionally, commenters asked the Department to expand the proposed exemption to apply to products not listed in the exemption (such as listed options and non-traded REITs), and to permit recommendations to sponsors of participant-directed plans like 401(k)s. In response, the final rule and exemptions reflect the following changes:

vice if certain conditions are met and hence will not require an exemption.

o Advisers recommending any asset—not just those on an asset list included in the proposal—can take advantage of the BIC exemption to continue receiving most common forms of compensation.

Streamlined and simplified requirements of BIC exemption.

o BIC exemption will be available for advice to small businesses that sponsor 401(k) plans, as well as for advice to IRA customers and plan participants. Additionally, under the final rule, recommendations to plan sponsors managing more than $50 million in assets (vs. $100 million in the proposed rule) will not be considered investment ad-

o BIC exemption includes special provisions clarifying how it can be used for recommendation of proprietary products, including a requirement that firms determine that the limitations are not so severe that the adviser will generally be unable to satisfy the exemption’s best interest standard and other requirements.

Responding to feedback from commenters, the Department has taken a number of steps to streamline the BIC exemption to lower compliance costs for firms implementing it and ensure that firms can continue offering commission-based advice to clients for whom it is the best option. o Eliminates the contract requirement for ERISA plans and their participants and beneficiaries. Firms must acknowledge in writing that they,

and their advisers, are acting as fiduciaries when providing investment advice to the plan, participant, or beneficiary, but no contract is required. o For advice to IRA holders, provides firms flexibility on when to enter into the contract. Some commenters expressed concerns that advisers would need to present a contract as soon as someone walks in the door – before they’ve even decided whether to hire that adviser. The final exemption makes clear that is not the case. Rather, the contract can be signed at the same time as other account opening documents. However, any advice given before the contract was signed must be covered by the contract and also meet a best interest standard. The exemption also permits existing clients to agree to the new contractual protections by “negative consent.” o Minimizes number of contractual parties. While the proposal required the firm, advisers, and client to be parties to the contract – which could be difficult in situations like call centers where the customer speaks to multiple advisers at a firm – the final exemption simplifies the contract requirement so that it is only between the firm and the client. There does not have to be a new contract for each interaction with a different employee of the same firm, minimizing the burden on firms. o Significantly streamlines and simplifies the required disclosures. Firms commented that the types of disclosure

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use press release dated 6th April 2016 envisioned by the proposed best interest contract exemption, in particular the transaction disclosure requiring 1-, 5-, and 10-year projections, would be difficult and costly. Under the final exemption, the transaction disclosure is simplified to focus on the firm’s conflicts of interest, the website disclosure is streamlined but still designed to enable third parties to help customers evaluate different firms’ practices that may affect advisers’ conflicts of interest, and the annual disclosure is eliminated entirely. Clients can also request more detailed disclosures on costs and fees; that way, they can get the information they need at less cost to firms. o Eliminates data retention requirements. Some commenters expressed concerns that, under the proposal, firms would be required to retain detailed data on inflows, outflows, holdings, and returns for retirement investors. Now firms have to retain only the records that show they complied with the law (in this case, the BIC exemption), as they would in other situations. o BIC exemption contains a streamlined “level fee” provision, which enables advisers and firms that receive only a “level fee” in connection with the advice they provide to rely on the exemption without entering into a contract so long as special attention is paid and documentation is kept to show that certain specific recommendations, including a recommendation to rollover assets from an employer plan to an IRA, are in the custom-

er’s best interest. Level fee fiduciaries receive the same compensation regardless of the particular investments the client makes (e.g. they may be compensated based on a fixed percentage of assets under management or a fixed dollar fee) and are not compensated based on commissions or transaction fees. Grandfathered existing investments. Responding to comments, the BIC exemption includes a grandfathering provision that allows for additional compensation from previously acquired assets. The grandfather provision includes recommendations to hold, as well as systematic purchase agreements, but requires that additional advice satisfy basic best interest and reasonable compensation requirements.

publication, in April 2017, the broader definition of fiduciary will take effect, but to take advantage of the BIC exemption, firms will only be required to comply with more limited conditions, including acknowledging their fiduciary status, adhering to the best interest standard, and making basic disclosures of conflicts of interest. The other requirements of the exemption will only go into full effect on January 1, 2018. The Department intends to focus during that time on providing compliance assistance to help plan fiduciaries and fiduciary investment advisers make the transition to the new rule, exemptions, and consumer protections for investment advice.

Extended implementation time period. Commenters expressed concerns about their ability to comply with the rule in the 8 month implementation period suggested by the proposal. To give firms more time to come into full compliance, the final rule and exemptions adopt a “phased” implementation approach. One year after the rule’s

Editor’s comment: And yes, you have! I wonder if the UK regulators, and others around the world will be brave enough and determined enough to consider introducing these kind of protections, despite the strength of the vested interests that would need to be overcome?

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ARTICLE: ANDY AGATHANGELOU

TIME FOR A TRANSPARENCY TS

by ANDY AGATHANGELOU, FOUNDING CHAIR | THE TR

Most of us have encountered people of dubious trustworthiness at some stage in our lives and of course it’s a horrible feeling when you know you’ve been “had” by somebody you put your trust in. Distrust serves a purpose, in the sense that it is a cautionary response to fear and it can help to protect us from harm. We can distrust individuals; we can distrust groups; we can even distrust an entire sector and the harsh reality is that many people distrust the financial services sector. We know this anecdotally, from empirical evidence and also through extensive research by organisations such as the massive PR firm Edelman who produce their global Trust Barometer annually.

Reputational damage persists:

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Unfortunately, there is ample justification for financial services to be distrusted. Barely a week goes by without there being media coverage about how one part of the financial services sector or another has ripped off somebody, somewhere.

Scandals happen so frequently now that we’re at risk of them becoming part of the “accepted order of things” which is a shocking thought in itself; and all this despite the world’s many thousands of people employed in financial services regulation and compliance.

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SUNAMI

RANSPARENCY TASK FORCE Consider this depressing list of just some of the events and practices that have, in effect, educated the public to distrust pensions: Maxwell, transfers into personal pensions, the surplus-siphoning saga, the winding up of underfunded schemes, “raids” on Ireland’s National Pensions Reserve Fund, switching the inflation link, the whole Equitable Life scandal, Gordon Brown’s “pensions heist”, Pension Freedoms scams and the long list of miss-selling sagas including the miss-selling of SERPS, FSAVCs, QROPs, SIPPs, annuities, pension mortgages, income drawdown and of course the ongoing scandal of hidden pension charges. It is saddening to think that the behaviour of some means that our sector as a whole seems so pre-disposed to what I call ‘reputational self-harm’. To my mind there is absolutely no doubt that the financial services sector is wholly responsible for the reputation of the financial services sector; and it is a responsibility that has been terribly miss-managed.

had (for example on costs, consequences, risks and alternatives). I suspect that sometimes the opacity is deliberate, but I also believe that very often it is not. But either ways it always exposes the consumer to the risk of poor outcomes through the poor decisions they make. It is also worth noting that burying the consumer under an avalanche of unintelligible data can be just as as harmful as a lack of clear, honest, usable and verified information - but more on that another time.

Enough is enough: All the time this state of affairs persists damage will continue to be done; that’s damage to the wellbeing of the consumer, damage to the reputation of the sector as a whole and damage to the efficacy of government policy.

The only good news here is that when things continue to get worse and worse there eventually comes a tipping point when “enough is enough” and people start to demand change. I believe that we are now seeing a wave of change crashing through financial services - it’s a big wave and it’s getting bigger still– it’s a tsunami, a transparency tsunami; a tsunami that is being created by the insight and wisdom of thought leaders such as Con Keating, David Pitt-Watson, Chris Sier, Daniel Godfrey, Colin Meech, Henry Tapper, Pete Glancy, Anna Tilba, Michelle Baddeley, Nicholas Morris, Eric Veldpaus, Paul Secunda, Paul Trickett and many others; and pro-consumer groups such as Share Action, Manifest, the

At the heart of many of these issues is a lack of transparency, whereby the consumer (be that an individual/trustee board/ IGC etc.) is not given information they should have | May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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ARTICLE: ANDY AGATHANGELOU Financial Services Consumer Panel and the True & Fair Campaign; and professional bodies such as the PMI, CFA Society UK, AMNT and the UK Government too - through the Department for Work & Pensions, The Financial Conduct Authority and The Pensions Regulator; and also the equivalents of all these parties in many other parts of the world. About the Transparency Task Force: My experience leading the Transparency Task Force since May 2015 leads me to conclude that we are now at tipping-point time for the transparency tsunami. What is now needed is a substantial commitment from within financial services to collaboratively push the cause for transparency forward, and that’s exactly what the Transparency Task Force is all about.

influential forum dedicated to encouraging greater transparency in financial services, right around the world. • A campaigning community that believe higher levels of transparency are a prerequisite for fairer, safer and more efficient markets that deliver better value for money and better outcomes. • Encouraging vibrant, forthright and intelligent debate Furthermore, because of the correlation between a lack of trust and a lack of transparency, we hope that our work on transparency will also help to rebuild trust and confidence in financial services, for the benefit of all market participants and their clients. We have five teams of volunteers, each focusing on particular issues: • The Data Team

We are:-

• The Costs & Charges Team

• An informal but increasingly

• The Rational Decision-Mak-

ing Team • The Stewardship Team • The International Best Practice Team People are getting involved for many reasons – some because of a noble sense of altruism; some because they want to prevent yet more clunky regulation; some because they recognise that transparency is a commercial virtue and want to publicly align with it, hoping (quite rightly) that it will be good for business. Over 100 people have volunteered to help so far. They are great people, doing a superb job – you can take a look at who they are later in the magazine and if you’re consistently client-centric yourself you’d be most welcome to get involved to help us effect the change that the financial services industry needs and the public deserves.

A virtuous spiral: By working together to build a more transparent market we will also drive positive intended consequences, because positive change in one area will lead to positive change in another. I think we can create something of a virtuous spiral around what I think of as a trinity of positive change in this space, namely: transparency, simplicity and value-for money.

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Here’s how I see it: There is far too much of what I call ‘unrewarded complexity’ in financial services, by which I mean complexity that does not generate any value to the consumer. This is a problem for two reasons: Firstly, because needless complexity is a barrier to understanding and what isn’t understood isn’t trusted (nor should it be). Secondly, ‘unrewarded complexity’ seems to sometimes be engineered into product design as a way to obfuscate. Whether that’s actually a reality or just an inaccurate perception that I have doesn’t really matter – it results in the same thing – people distrusting and disengaging i.e. the very opposite of what we all want. If we can work together to achieve the transparency that is needed, then any ‘unrewarded complexity’ that exists in the system becomes highly visible. Market forces will mean that consumers will be attracted to simpler and more straightforward products, which have a better chance of delivering better outcomes. If we look into the future and now imagine that transparency and simplicity are on the mend there will be an inevitable uplift in value for money because in an efficient market people gravitate towards value, and the more transparent the market (particularly in relation to costs and charges)

the more efficient it becomes. All this has profoundly important implications to the look and feel of the financial services sector of the future. The market ten years from now will be very different; the winners will be organisations with consistently client-centric philosophies; business models built on transparency and trust; and a track record of value-for-money-delivery to their clients through easyto understand products with straightforward and fully transparent charging structures. All other market participants will gradually lose market share and fade into obsolescence; as they should. I believe that in essence this

is exactly the kind of change the Financial Conduct Authority’s Asset Management Market Study should bring about. Whether it does or not will depend on many factors, including of course whether the asset management industry has successfully attempted to persuade the powers-that-be to maintain the status quo. I am hopeful that the FCA’s Asset Management Market Study, which places great emphasis on value for money does what needs to be done. We shall see.

A consensus-based pan-industry response to regulatory activity is needed. A concerted effort by the entire investments and pensions industry to ‘get our house in order’ is long overdue. If we don’t, the government and

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ARTICLE: ANDY AGATHANGELOU regulators will simply have to intervene, sooner or later. Here in the UK they are quite rightly taking a good look at value for money and our own government’s commitment to requiring greater disclosure of transaction costs is reinforced by Section 44 of the Pensions Act 2014, which places (as I understand it) a duty on the Financial Conduct Authority and the Department for Work & Pensions to require disclosure of some or all transaction cost information in workplace pension schemes, as per FCA & DWP’s Transaction Costs Disclosure: Improving Transparency in Financial Services work-stream.

Beyond this there is also the Pension Fund Disclosure Code, the CIS Disclosure Code, the Global Investment Performance Standards, the Principles for Investment Reporting, the requirement on Trustees and IGCs to seek information on scheme charges and of course there’s European legislation (MIFID II, KIDs, PRIIPs and more). A consensus-based pan-industry response to all the regulatory activity is needed, otherwise we’ll miss the chance to create change that is efficient, effective and indeed, elegant.

Conclusion: Transparency, particularly cost transparency, is a nec-

essary step to improving trust in all financial markets, and given the vast amounts of money invested by employers and employees for the provision of income in old age the entire pensions industry, right around the world should feel wholly obliged to ensure that pension schemes account for how the money entrusted to them is being spent. There’s a virtuous spiral to be had here, if we want it, with transparency driving simplicity that leads to better value for money. That’s worth working together for, isn’t it?

Andy has worked in the financial services sector for over 30 years. He holds a leadership position in several industry organisations, most of which are characterised by the ethical business philosophy of “Enlightened Self Interest” whereby individuals who act to further the interests of others (or the interests of the group or groups to which they belong), ultimately serve their own self-interest. He is: • Founding Chair of the Transparency Task Force, the international community that is campaigning to drive up the levels of transparency in financial services right around the world; for the benefit of the consumer but also for the benefit of the reputation of the financial services sector as a whole. www.transparencytaskforce.org • Founding Chair at The Chartered Institute of Payroll Professionals’ Friends of Automatic Enrolment which was created as a ‘collaboration catalyst’, to help drive up efficiency and interoperability within the AE market. www.friendsofae.org • Chair of Pensions BIB, which created the Pensions and Payroll Data Interface Standard (PAPDIS), the free and open data standard for those implementing AE. PAPDIS is receiving widespread support as it can increase data security and drive down operating costs for the benefit of the entire pension and payroll market. www.papdis.org • Founding Chair, Friends of the Association of Member Nominated Trustees, created to provide a supportive community for MNT’s, and particularly to help resolve the problem of information and knowledge asymmetry amongst lay trustees. www.amnt.org

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ALL YOU NEED TO KNOW ABOUT:

What’s it for?

Our Transparency Symposiums have a purpose - to galvanise support for the idea that there ought to be higher levels of transparency in financial services, right around the world. They are uniquely inclusive opportunities to consider and debate the keys issues, contemplate the thought leadership available and build consensus on the best way forward for the financial services industry and its clients, as a whole. Delegates will enjoy an environment that is conducive to candid and intelligent debate, where ideas can be exchanged in a constructive and civilised manner thereby encouraging co-operation, collaboration and collegiality, for the benefit of all.

When is it?

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

Where is it?

How much are the tickets? The target ticket price is £150 which includes logo sponsorship, but if that is genuinely beyond your budget and you are keen to promote greater transparency in financial services you may pay a reduced contribution for your place, as low as just £1 if absolutely necessary - so please pay as much as your budget allows, up to £150. This rather unusual pricing policy has been developed because we do not want cost to prevent, for example, Member-Nominated Trustees from being able to attend, and that’s very important to us because the overall purpose of the event is to galvanise support for the idea that there ought to be higher levels of transparency in financial services, right around the world. So if you’re on our wavelength be sure to attend our event!

London, venue to be decided - we are still seeking a venue sponsor - get in touch if you or somebody you know might be interested!

What’s the Transparency Trophy all about?

A Transparency Trophy is awarded at each Transparency Symposium. Contenders are individuals and organisations that can evidence they “believe in transparency”, and want to showcase their pro-transparency credentials. Previous winners are The Dutch Association of Pension Funds and ShareAction. As well as being a bit of fun, it’s a great way for pro-transparency organisations to get the recognition they deserve and to help lead the way for others to follow. Furthermore, there is no cost to compete, and better still submissions are limited to just one side of A4! - so what are you waiting for?

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What about a Transparency Symposium outside the Uk?

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

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Who’s speaking?

We have another cracking line-up for you: The Rt Hon Sir Vince Cable, Former Secretary of State for Business Innov. and Skills Alexander Adamou, Fellow, London Mathematical Laboratory Jonathan Lipkin, Director, Public Policy at The Investment Association Jackie Beard, Director, Manager Research Services EMEA at Morningstar Alexander Schindler, President, European Fund and Asset Management Association JB Beckett, Association of Professional Fund Investors, Author #newfundorder Tony Filbin, Group Chairman, Capital Cranfield Independent Trustees Jamie Jenkins, Head of Pensions Strategy, Standard Life Robin Powell, Editor, The Evidence-Based Investor

What happens afterwards?

We go to the pub, of course!

I’d like to be a pannelist or speaker, what do I do?

That’s great - please get in touch now!

Enquiries: andy.agathangelou@transparencytaskforce.org

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

Who’ll be attending?

Based on our three previous Transparency Symposiums we’re expecting a crowd of 50 to 100 people from organisations such as: Regulators - including the Financial Conduct Authority and The Pensions Regulator, The Department for Work and Pensions, Asset Owners including lay and professional trustees, Asset Managers, Representatives from Professional Associations and Trade Bodies including The Investment Association - CFA Society UK - AMNT - PLSA - The Wealth Management Association - The Pensions Policy Institute, Standards Bodies, Environmentalists, Consultancies, Advisory Firms, Transition Managers, Parliament, Governance Consultancies, Lawyers - pensions and investment, Pension Cost Analysis Consultants, Investment Chairs, Pension Providers, Data Consultancies, Academics, Platform Consultancies, Benchmarking Organisations, Pensions and Investment Research Organisations, Governance Organisations, Employee Benefit Consutants, Independent Financial Advisors, Campaigning Groups such as The United Nations Global Compact - ShareAction - Tomorrow’s Company - UKSIF - The Institute for Global Financial Integrity, Custodian Banks, Trade Unions, Fiduciary Managers, Pension Scheme Selection Consultancies, Boutique Investment Houses, Wealth Managers, Banks, Financial Services PR companies and Asset Servicing Companies. So, apart from anything else our Transparency Symposiums are outstanding networking opportunities.

So how do I book my place? Great question!

Just click here!

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ALL YOU NEED TO KNOW ABOUT:

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

The Data Team The Costs & Charges Team The Rational Decision-Making Team The Stewardship Team The International Best Practice Team

The following tables show the make-up of the teams; those in bold red are Team Leaders:

Who’s in the Data Team? First name

Last name

Job title

Organisation

Julius

Pursaill

Director

Byhiras Trust

Andy

Agathangelou

Founding Chair

Transparency Task Force

Con

Keating

Principal

Brighton Rock Group

Markus

Krebsz

Interim Chief Risk Officer

UNECE GRM

Henrik

Pedersen

Co-Founder

Clerus

Shaul

David

Fin Tech Sector Specialist

UKTI Financial Services Organisation

James

Singer

Senior Associate

P-Solve

Nils

Johnson

Director

Spence Johnson

Nick

Fleming

Market Development Manager

British Standards Institute

Gerry

Wright

Partner

Smith & Williamson Investment Management LLP

Christopher

Squirrel

Founder and CEO

Sciurus Analytics

Sunil

Chadda

Director

Cairn Consulting Ltd

David

Rich

Accurate Data Services

Tim

Walton

Elizabeth

Campbell-Warner

CEO Manager, Data Research and Analysis Managing Director

Gabriel Research & Management Ltd

Chris

Connelly

Principal Consultant

Aquila Heywood

Morningstar

John

Simmonds

Principal

CEM Benchmarking Inc

Stewart

Bevan

KAS BANK

Iain

Clacher

Product Manager - Benchmarking Associate Professor in Accounting & Finance

Leeds University Business School

We are seeking new members in all of our teams. 12 To learn more about each team’s focus and to express interest in getting involved please email andy.agathangelou@transparencytaskforce.org Who do you know that might also want to know more about our Teams? 60

| The Transparency Times | www.transparencytaskforce.org | Launch Edition | May 2016 |


Who’s in the Costs & Charges Team? First name

Last name

Job title

Organisation

Mi ke

Webb

Consultant

City Noble

Ti m

Brown

Head of Consultant Relations, EMEA

Dimensional Fund Advisors

Margaret

Snowdon OBE

Chai r

Pensions Administration Standards Association

Dani el

Godfrey

Non-Executi ve Di rector

Big Issue Invest Fund Management

Marti n

Palmer

Head of Corporate Funds Prop’n.

Zurich Financial Services

Andy

Agathangelou

Founding Chair

Transparency Task Force

Con

Keati ng

Principal

Brighton Rock Group

Henri k

Pedersen

Co-Founder

Clerus

Anna

Ti lba

Lecturer i n Strategy & Corp. Gv’ce

Newcastle Uni versi ty Busi ness School

Henry

Tapper

Founder

Pension PlayPen

Michelle

Baddeley

Professor of Economics and Finance

Uni versi ty College London

Iai n

Clacher

Associ ate Professor i n Acc & Finance

Leeds Uni versi ty Busi ness School

Andrew

Evans

Chi ef Executi ve Offi cer

Smart Pension

JB

Beckett

Consulting CIO and Author

New Fund Order Consulting

Iai n

Cowell

Head of Inv Solutions, UK & Ireland

Allianz Global Investors

James

Monk

Head of DC Investments

Aon Employee Benefi ts

Nick

Gannon

Poli cy Manager

B&CE, The People's Pensi on

Imran

Razvi

Public Policy Adviser

Investment Associ ati on

Lucy

Forgi e

Poli cy Advi ser

ABI

Jami e

Jenkins

Head of Pensions Policy

Standard Life

Stephen

Bowles

Head of Institutional DC

Schroders

Nick

Fleming

Market Development Manager

British Standards Institute

Ti m

Sharp

Economic and Soci al Affai rs Department

TUC

Ronnie

Morgan

Strategi c Insi ght Manager

Royal London

Angi e

Kirkwood

Seni or Mgr Industry Development

Scottish Widows

Sunil

Chadda

Di rector

Cairn Consulting Ltd

Stephen

Budge

Principal

Mercer

Neil

Morgan

Senior Pension Trustee

Capita Asset Services

Jonathan

Parker

Head of Defined Contribution

Dimensional Fund Advisors

Chris

Sier

Director

FiNexus

Graham

Cook

Portfolio Solutions

Macquarie Securities

Ralph

Frank

CEO

Cardano

Shyam

Moorjani

Partner

RSM

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ALL YOU NEED TO KNOW ABOUT: THE TRANSPARENCY TASK F Who’s in the Rational Decision-Making Team?

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Firs t name

Last name

Job title

Organisation

Andy

Agathangelou

Founding Chair

Transparency Task Force

Philip

Brown

Head of Policy

LV

Con

Keating

Principal

Brighton Rock Group

Henry

Tapper

Founder

Pension PlayPen

Iain

Clacher

Associate Professor in Accounting & Finance

Leeds University Business School

Neil

Morgan

Senior Pension Trustee

Capita Asset Services

Markus

Krebsz

Interim Chief Risk Officer

UNECE GRM

James

Meenan

CEO

JNM Investment Governance

Rachel

Haworth

Policy Officer

ShareAction

Steve

Cave

Associate Director

Smith & Williamson

Tim

Middleton

Technical Consultant

Pensions Management Institute

Mark

Miller

Employee Benefits Consultant

Barclays Corporate & Employer Solutions

Alan

Salamon

Managing Director

Corpias

Henrik

Pedersen

Co-Founder

Clerus

| The Transparency Times | www.transparencytaskforce.org | Launch Edition | May 2016 |


FORCE TEAMS Who’s in the Stewardship Team? First Name

Last Name

Job Title

Organisation

Julius

Pursaill

Director

Byhiras Trust

Paul

Hewitt

Consultant

Vigeo EIRIS

Andy

Agathangelou

Founding Chair

Transparency Task Force

Con

Keating

Principal

Brighton Rock Group

Alison

Berridge

Corporate Affairs Manager

B&CE, The People's Pension

Sebastian

Reger

Partner

Sackers

Terry

Ritchie

Development Director

Trustee Solutions Ltd

Michael

Kemp

Senior Pensions Technician

Pinsent Masons LLP

Valborg

Lie

Director

Borg Consulting, Sustainable Investment

Con

Keating

Principal

Brighton Rock Group

Anna

Tilba

Lecturer in Strategy & Corporate Governance

Newcastle University Business School

Joshua

Card

Chief Executive Officer

Kukua

Iuliia

Shpak

PhD Researcher in Finance/ Systematic Strategies

University of East London/Sarasin & Partners

Paul

Lee

Head of Corporate Governance

Aberdeen Asset Management

Sarah

Hutchinson

Consultant

SJ Hutchinson Ltd

Paul

Marsland

Deputy Director

High Pay Centre

Judith

Donnelly

Partner

Squire Patton Boggs

Luke

Hildyard

Policy Lead: Stewardship and Corporate Governance

Pensions and Lifetime Savings Association

Janice

Lambert

Pensions Consultant

Independent

Rachel

Haworth

Policy Officer

ShareAction

Barry

Mack

Head of Governance

Hymans Robertson

Emma

Craig

Marketing Specialist

KAS BANK N.V.

Sarah

Wilson

Chief Executive

Manifest

David

Weeks

MNT

Lovells, AMNT

T E A M S | May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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ALL YOU NEED TO KNOW ABOUT: THE TRANSPARENCY TASK F Who’s in the International Best Practice Team? First name

Last name

Job title

Organisation

Location

David

Knox

Senior Partner, Senior Actuary

Mercer

Melbourne

M. Nicolas J.

Firzli

Director General and Head of Research

World Pensions Council

Paris

Nicholas

Morris

Visiting Professor

Oxford University

Melbourne

Heinz-Dietrich

Steinmeyer,

Prof. of Law, Dir. of the Inst. for Lab. Law, Soc. Law and Bus. Law

University of Muenster

Muenster

Dana

Muir

Professor of Business Law

Univ. of Michigan's Ross School of Business

Michigan

Felix

Mezzanotte

Assistant Professor of Law, School of Accounting and Finance

Hong Kong Polytechnic University

Hong Kong

Alex

Mazer

Founding Partner

Common Wealth

Toronto

Valborg

Lie

Director

Borg Consulting, Sustainable Investment

UK (Norway)

Tomas

Wijffels

Policy Advisor

Federation of Dutch Pension Schemes

The Hague

Con

Keating

Head of Research

BrightonRock Group

London

Andy

Agathangelou

Founding Chair

Transparency Task Force

Portsmouth

Janice

Lambert

Pensions Consultant

Independent

Chichester

Frits

Meerdink

Manager, Fund Management

PGGM Investments

Amsterdam

Amy

Auster

Executive Director

Australian Centre for Financial Services

Melbourne

Imran

Razvi

Public Policy Advisor

The Investment Association

London

Ian

Fryer

Head of Research

Chant West

Sydney

Elias

Westerdahl

Sustainable Business Analyst

The Centre for Synchronous Leadership

London

Steve

Kenzie

Executive Director

United Nations Global Compact

London

Eric

Veldpaus

Strategy Director

Novarca Group

Amsterdam

Chris

Golden

Deputy Chair

European Capital Markets Institute

Brussels

Nikki

Gwilliam-Beeharee

Food and Health Research Manager

Vigeo

Paris

Rosalie

Degabriele

Academic Finance Superannuation & Banking

University of Technology

Sydney

Eric

Plunkett

Principal

Redbrucke

Dublin

Graham

Wrightson

Partner

Stephenson Harwood LLP

London

Jonathan

Hall

Head of Financial Services Sales

Aquila Heywood

Redhill

SV

Rangan

Senior Executive

AIG

London

Chris

Sier

Director

FiNexus

London

Anna

Tilba

Lecturer in Strategy & Corporate Governance

Newcastle University Business School

Newcastle

Paul

Secunda

Prof. of Law and Dir, Labor and Emp’t Law Program

Marquette University Law School

Milwauke

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FORCE TEAMS

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ALL YOU NEED TO KNOW ABOUT TRANSPARENCY STATEMENT Transparency Statements are a great way to show your support for our international campaign and to align your organisation with our intention to encourage greater transparency in financial services, right around the world. We believe that higher levels of transparency are a pre-requisite for fairer, safer and more efficient markets that deliver better value for money and better outcomes for consumers. Furthermore, because of the correlation between transparency and trustworthiness we believe our work will also have a positive impact on the reputation of the financial services market as a whole.

please complete the sentence:

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

and email it to

To provide your transparency statement

Thank you very much indeed

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

andy.agathangelou@ transparencytaskforce.org

Judith Donnelly Partner | Squire Patton Boggs

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

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

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

Angie Kirkwood Senior Manager Industry Development | Scottish Widows

“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”.

Chris Connelly Principal Consultant | Aquila Heywood

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| The Transparency Times | www.transparencytaskforce.org | Launch Edition | May 2016 |


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

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

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

Martin Palmer Head of Corporate Funds Proposition | Zurich

“I believe there ought to be higher levels of transparency in financial services because it will help to provide a level playing field as well as helping to restore trust and confidence amongst consumers that they are receiving value for money. This is particularly important at a time when increasing consumer engagement and understanding is so critical”. Bryan Beeston “I believe there ought to be higher levels of transparency in Director | financial services because transparency builds trust, and all ITM Limited consumers and market participants will benefit from improved clarity and thereby increased levels of understanding enjoyed by the end customer”. Olivia Seddon-Daines “I believe there ought to be higher levels of transparency in finanSenior Research Analyst | cial services because I am concerned that the everyday pension ET Index saver is embroiled in a system which charges fees at every turn, which invests in volatile markets that do not price in carbon risk, and, most importantly, that has proven itself unable/unwilling to accept ownership of endemic risks to the system, and the knockon effects to the real economy”. Jon Parker “I believe there ought to be higher levels of transparency in CEO | financial services because without it, customers will simply Jonathan Parker continue to mistrust the industry and lose out financially. However, Consulting we would be wise to remember that more information and data can itself be a hindrance to improving outcomes”. Nicholas Morris “I believe there ought to be higher levels of transparency in finanAcademic Visitor | cial services because financial services are key to our economy St Anthony’s College, and society, and transparency is necessary to encourage trustworOxford thy behaviour by financial services professionals. It is important that we define their obligations and responsibilities clearly, and then hold the industry and those who work within it to account.” Shyam Moorjani “I believe there ought to be higher levels of transparency in Partner | financial services because pension scheme members are entitled RSM to know the full cost, including all transactions, for the administration and investment of their money. Transparency will also allow benchmarking and informed comparisons to allow investors to make informed and better investing decisions and to enable them to improve outcomes to reach their financial goals.” | May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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

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

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“I believe there ought to be higher levels of transparency in financial services because more transparency leads to better governance and in control management of pension schemes in all aspects”. “I believe there ought to be higher levels of transparency in financial services because users of our services should be able to understand what is being done for them and the corresponding charges being levied”. “I believe there ought to be higher levels of transparency in financial services because every customer has the right to know exactly how much goods and services cost at the point of purchase” “I believe there ought to be higher levels of transparency in financial services because it contributes to the establishment of trust which can improve consumer outcomes. To date, the focus has been on costs and performance, but the investment profession and its stakeholders would also benefit from an improved understanding of the purpose of investment and from the processes employed on their behalf.” “I believe there ought to be higher levels of transparency in financial services because stakeholders deserve to have access to the right information, to inform the best levels of decision-making and improve outcomes”. “I believe there ought to be higher levels of transparency in financial services because Transparency is critical for investor confidence and trust in financial markets” “I believe there ought to be higher levels of transparency in financial services because Pension scheme members should know how much it costs to be a member of their scheme. The full cost, including all transactions, for the administration and investment of their money”. “I believe there ought to be higher levels of transparency in financial services because it is only through transparency that we can gain the trust required to succeed.” “I believe there ought to be higher levels of transparency in financial services because ensuring institutional investors are directly accountable to the people whose money they look after is the only way to transform the system into one that serves savers, society and the environment”.

| The Transparency Times | www.transparencytaskforce.org | Launch Edition | May 2016 |


TS Stephanie Baxter News Editor | Professional Pensions

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

Nils Johnson “I believe there ought to be higher levels of transparency in Co-Founder and Director | financial services because it is good for business. Confidence, Spence Johnson Ltd efficiency, growth and profitability are all enhanced – over the long term – by greater transparency”. Andy Agathangelou “I believe there ought to be higher levels of transparency in finanFounding Chair | cial services because it holds the key to regaining the trust of the Transparency Task Force consumer, delivering value-for-money and operating a competitive market”. Jonny Paul Freelance Journalist

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

“I believe there ought to be higher levels of transparency in financial services because financial advice is still generally seen as the preserve of the wealthy and post-crisis there is still much distrust. So I believe that a campaign from within that homes in on greater transparency, focusing more on consumer outcomes, that does not stem from the regulators is a powerful way to show intent”. “I believe there ought to be higher levels of transparency in financial services because it will be good for everyone. Consumers will be able to compare and demand better value for money and the financial services industry itself will benefit from becoming more competitive, lean and effective”. “I believe there ought to be higher levels of transparency in financial services because consumers and clients need to trust the industry through having access to clear, open, honest, jargon-free information in order to make informed choices to meet their financial objectives.”

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RECOMMENDED READING Over the years, many leading academics and authors have provided superb insight into the workings of the financial services sector and commented on the importance of creating much more transparency in the system. 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 wonderful thought-leadership, considered opinion and analysis that is available through their work. If you would like to submit a piece of your own work, or the work of another that you would recommend to our members, please get in touch through: andy.agathangelou@transparencytaskforce.org

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

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

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

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| The Transparency Times | www.transparencytaskforce.org | Launch Edition | May 2016 |


“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 | May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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ALL YOU NEED TO KNOW ABOUT THE DIRECTORY OF PRO-TRA If you lead a pro-transparency organisation you can speak out and advertise in The Directory of Pro-Transparency Organisations. This is an important initiative because the market needs to know that there are many organisations that see transparency as a commercial virtue, and do not fear it as a threat. We are happy to consider different classifications to those shown. All enquiries about advertising in the Directory to: Transparency Task Force Ltd, andy.agathangelou@transparencytaskforce.org +44 (0) 207 55 88 77 3 +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 | Launch Edition | May 2016 |


ANSPARENCY ORGANISATIONS

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

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

INVESTMENT CONSULTANTS:

FINANCIAL PLANNERS:

WEALTH MANAGERS:

Is this the right classification for you?

ACTUARIES:

Is this the right classification for you?

PENSION SCHEME PROVIDERS:

PENSION SCHEME SELECTION EXPERTS:

ASSET MANAGERS:

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PENSION SCHEME CONSULTANTS

Is this the right classification for you?

RESEARCH ORGANISATIONS:

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INSURANCE COMPANIES:

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BANKS:

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REGULATORS AND GOVERNMENT DEPARTMENTS:

TRADE UNIONS:

Is this the right classification for you?

TRADE BODIES:

Is this the right classification for you?

CAMPAIGN GROUPS:

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PENSION SCHEME COST REDUCTION CONULTANTS

CONSULTING ACTUARIES:

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?

| May 2016 | Launch Edition | www.transparencytaskforce.org | The Transparency Times

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THE DIRECTORY OF PRO-TRANSPARENCY ORGANISATIONS

ANALYTICS ORGANISATIONS:

Is this the right classification for you?

PR FIRMS:

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EMPLOYEE BENEFIT CONSULTANTS:

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BENCHMARKING CONSULTANTS:

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INDEX PROVIDERS:

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HEDGE FUNDS:

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PRIVATE EQUITY:

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PUBLISHERS AND PUBLICATIONS:

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INDEPENDENT TRUSTEES:

EMPLOYER COVENANT CONSULTANTS:

POLITICAL PARTIES:

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DATA SERVICES:

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BUILDING SOCIETIES:

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COMMUNICATION CONSULTANCIES:

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CUSTODIANS:

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LAWYERS:

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GOVERNANCE CONSULTANTS:

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Is this the right classification for you?

| The Transparency Times | www.transparencytaskforce.org | Launch Edition | May 2016 |

The Transparency Times Launch Edition May 2016  

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