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A lang cat production for The Transparency Task Force



“Workplace pension scheme NDAs do not protect deals, they protect providers and fund managers from margin pressure. They should be banned by the FCA.� .... 8  alue for money in DC V pensions may appear simple, but establishing a consensus on its meaning is far from it. ..... 4

 hy does cash still have W investment allure? ..... 15

IG Group announces the launch of its IG Smart Portfolio range. ..... 12

The challenges of integrating ESG into the fund selection process. ...... 20

Can the big three overcome accusations of putting master trust sales above value? ..... 16

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3 Hello from the Editor 4 How should we think about value for money? 7 Transparency Statements 8 Cost disclosure now! No more workplace pension NDAs! 11 The Transparency Task Force Teams 12 IG Group champions fee transparency with launch of IG Smart Portfolios 15 Why are people still saving into cash? 16 AON, Mercer and Towers have lost the PR war on DC master trusts 17 The Directory of Pro-Transparency Organisations 20 Giving ESG its dues: the challenges for the fund sector

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Hello from the Editor Andy Agathangelou Founding Chair, The Transparency Task Force

Several months have passed since the Financial Conduct Authority (FCA) published the Interim Report to its Asset Management Market Study and it’s not long now until the Final Report is due to be published. Without a doubt, the Final Report has the potential to send shockwaves through the industry and if the FCA does decided to make a referral to the Competition and Markets Authority about the workings of the institutional investment consulting sector, we’re in for some particularly interesting times. Especially if the FCA decides to request that the sector is brought inside the regulatory perimeter. I can’t wait to read the Final Report and I hope that self-serving market participants and trade bodies haven’t eroded too much of the enlightened thinking displayed in the FCA’s Interim Report. If the topic is of interest, we are running a very special Transparency Symposium about the FCA’s Final Report on 5 July, in London, with senior FCA representatives as headline speakers – see page 6 for further details and to book your place. I’d like to thank this month’s contributors: • Henry Tapper, Founder of the Pension PlayPen and Director at First Actuarial, who puts across the very compelling case for why non-disclosure agreements should not be allowed to prevent cost disclosure and efficient market behaviour • Ian Peacock, Head of UK and Ireland at IG Group, who explains the rationale for the launch of IG Group’s new Smart Portfolios proposition, which has fee transparency hard-wired into product design. More of the same please! • Julius Pursaill, Independent Pensions and Investment Governance Consultant, who shares his thoughts on the value for money debate. Everybody seems to have their own perspective on this ultra-important topic and Julius’ views are well worth taking time to consider. • David Rowley, freelance journalist and blogger, who shares his thoughts on why the conflicts of interest amongst some master trusts need looking at. • JB Beckett, UK Lead for the Association of Professional Fund Investors, who outlines the importance of ESG Integration and the significant role that fund selectors have in the decision making process. In addition, I am pleased to publish, with his permission of course, Christopher Woolard’s response to my

email requesting that the FCA look into the idea of standardising performance reporting…. Dear Andy, Thank you for your email of 13 April 2017. I have indeed seen the coverage in the Financial Times to which you refer and I agree with your point around the importance of performance fees being reported in a clear, complete and reliable way to investors. The Asset Management Market Study identified a number of reasons why relying on past performance information may not help investors assess whether a fund or asset manager was likely to deliver the best risk-adjusted returns (see, for example, paragraphs 4.36-4.46). As part of the Interim Report, we suggested a package of remedies which included updating our guidance on the use of performance information. The consultation closed on 20 February and we are currently analysing the feedback received ahead of publication of a final report in Q2 2017. As this information is still not in the public domain, I cannot comment on the content of the Final Report. I am sure you will review the document when it is released and I look forward to hearing your views when you have done so. If I can be of any further assistance, please do not hesitate to contact me. Best wishes

Chris So, another packed edition, full-to-the brim with thought-provoking and often challenging content – enjoy!

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How should we think about value for money?


Investment Week 7 April 2017


There is rightly increasing focus on value for money (VFM) in DC schemes, referenced crucially in the annual statements from both Independent Governance Committee (IGC) and trustee chairs. VFM in DC pensions may seem a simple concept but there is no established consensus around a definition, and we are already seeing some widely differing views emerging around wherein value actually lies. Standard Life Investments, for example, has borrowed from the National Audit Office definition of VFM to argue that consistency of outcome between different cohorts of customers is a key component of value. This neatly underpins the use of diversified growth funds in the accumulation phase. Elsewhere, as required by The Pensions Regulator, there has been a developing focus on collating and evaluating below the line transaction costs. In an attempt to build consensus around a member-centric notion of VFM, IGCs have recently completed, with the help of Sackers, some value for money member research. There are lots of relevant and important insights contained therein, and it may seem

reasonable to move from feedback on “what members value” to evaluations of “value for money” on behalf of members. But it would be dangerous to assume these are the same thing. Two examples illustrate why we should be cautious about moving directly from one to the other. The research revealed that charges, in isolation, aren’t important to members. I have already heard it argued that, consequently, pressing providers further on transaction costs should not be a priority. In a world of lower expected returns, I find it impossible not to conclude that charges will have a crucial impact on member outcomes and that therefore they must remain a key component of VFM, whether or not members agree. In fact, a closer reading of the survey makes it clear that returns are a crucial VFM component for members, so charges, as a key contributor to outcomes, must remain at the forefront of our focus.

The survey also provides ample evidence for those who wish to argue that (sometimes costly) multi-channel communication strategies are a key component of VFM from the member perspective. Again, we should be cautious. At the RBS DC scheme, where I am a trustee, we have a clearly expressed view that engagement should NOT be a necessary condition for good member outcomes. It’s linked to a further belief, that not all member engagement leads to improved member outcomes. I have heard it argued that we should be encouraging members to understand the range of investment choices available and measure the success of this strategy by reference to member numbers opting out of the default. The level of investment sophistication required to build a sensible alternative strategic asset allocation (SAA) outside the default will be beyond most members. In a recent member nominated trustee appointment exercise (where we were by definition dealing with more engaged members), of those who had opted out of the default (a significant proportion), there was just one single sensible and appropriate (based on the members’ own explanations) alternative SAA and that was from a qualified actuary... I have experience of member communications intended to increase contribution rates leading to as many members reducing as increasing. It’s also arguable that existing communication offerings are typically of most benefit to those who are most financially sophisticated (and already somewhat engaged) and there is therefore a risk that the costs associated with them represent a

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cross subsidy from the typically less well-off members to the more well off. Not entirely satisfactory from a governance perspective. Providers, who have often invested very significant sums in their communication programs, in part to differentiate their value proposition, will want to argue that these are a key component of their value proposition and therefore of VFM. Before I get accused of wanting to keep members in the dark, like mushrooms, I should make it clear that I do believe it is possible for engagement strategies (and associated costs) to represent VFM. But for me, that value must be rooted firmly in what makes a difference to member outcomes. In order to asses VFM, I would want to ask “what behavioural changes can be evidenced as a result of member engagement?”. Some good answers might be: increased contribution rates, active selection of de-risking strategies and active engagement with the timing of benefit vesting. But I have seen very little evidence so far that costly comms strategies can be linked to positive changes in member behaviour. There is some emerging evidence, but we need more. We should be cautious of accepting comms costs representing a core component of VFM where there is no evidence of positive impact on member behaviour and outcomes. We should at the same time maintain our governance focus on costs and we should be spending

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Our obligation is to assess value by reference to members’ best interests, rather than by reference to what members say they value. We might aspire to arrive at a point where there isn’t a great deal of difference between the two, but we aren’t there yet.

more time thinking about how we make value for money assessments about different strategic asset allocations, with higher and lower levels of risk asset exposure, about volatility – is it important or not? And going back to Standard Life Investment’s argument, how important in terms of VFM is dispersion of outcomes between different cohorts of members? In the context of these questions, richness of debate and some different conclusions in VFM assessment criteria is to be welcomed, so all of us charged with governance should give very careful consideration to what criteria we want to use. Our obligation is to assess value by reference to members’ best interests, rather than by reference to what members say they value. We might aspire to arrive at a point where there isn’t a great deal of difference between the two, but we aren’t there yet.

Julius has investment and pension governance responsibility over around £150 billion on behalf of clients such as Prudential, Royal London Group, RBS and Heineken.

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5 JULY 2017 10:30 – 17:00 With complimentary drinks after



THE FOCUS OF THE ASSET MANAGEMENT BUSINESS FOR THE LAST YEAR When the FCA published the interim findings of its Asset Management Market Study last November it sent shockwaves through the pensions and investment industry. Having undertaken the work to ensure that the market works well and that investment products offer consumers value for money, the Interim Report suggested that the industry was falling short on numerous fronts, with several serious issues highlighted. The eagerly-awaited final findings are due this month and our next Transparency Symposium is devoted entirely to analysis, discussion and debate around these findings. Our speakers will include senior representatives from the FCA.

WHY ATTEND? Many are curious about the extent to which market reaction to the Interim Report has influenced the FCA in its output. Will the regulator stand firm on its proposed measures or has the industry succeeded in its efforts to tone them down? The Symposium will be an excellent opportunity to answer these questions. You’ll also have the opportunity to put your own questions and comments to senior members of the FCA with robust discussions and lively debate sure to form the backdrop of the day.

Tickets are limited and we expect demand to be high so book your place now. We are very grateful to IG Group for hosting this event. Without their generous support the event would not be possible.

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Transparency Statements Transparency statements are a great way for individuals and organisations to show support for our international campaign for improved transparency in financial services. 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. Transparency breeds trust. By fostering greater transparency across financial services, together we can positively impact the reputation of the market as a whole. Which is good for everyone. You can add your transparency statement by completing this sentence:

‘I believe there ought to be higher levels of transparency in financial services because…’ and sending it to

Here are some examples from members who have already shown their support.

Chris Connelly

Martin Palmer

Principal Consultant, Aquila Heywood

Head of Corporate Funds Proposition, Zurich

‘I believe there ought to be higher levels of transparency in financial services because we look after people’s money and therefore their futures. It’s as simple as that’.

‘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.’

Richard Hulbert Insight Analyst, Defaqto

‘I believe there ought to be higher levels of transparency in financial services because it empowers better financial decisions.’

Helena Morrissey Former Chair, The Investment Association

‘I believe there ought to be higher levels of transparency in financial services because it’s the very starting point for establishing trust.’

Pauline Skypala Freelance Journalist

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

Phil Ninness Business Development Manager, Accurate Data Services

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

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Cost disclosure now! No more workplace pension NDAs!


22 APRIL 2017


Following Julius Pursaill’s excellent piece on value for money (VFM), I’m following up with some practical thoughts. I am not clear in my mind that the primary driver of outcomes for members of DC workplace pensions are: 1. Money in 2. Money out (costs and charges) 3. Investment performance

I will put to the side the means of converting pot to pension (though this is critical, it cannot concern us here). Julius’ contention is that VFM should not be concerned with “incomes” but “outcomes”. The amount that is paid into a workplace pension is a function of marketing – employer and employee engagement. It is a

measure for us to be concerned about, but it is not the VFM measure. Julius is right to isolate outcomes as being “what happens once the money is in the workplace pension”. That is what people want to know. This means isolating the investment element of the total charge and focusing purely on that. This is what some workplace pensions (L&G and

Hargreaves Lansdown) do. I know that I pay 0.13% for my L&G multiasset fund (and thanks to some tough negotiation by my employer, 0.18% for everything else). But if I was invested in NEST, or The People’s Pension or NOW: Pensions or Standard Life I would not know what I was paying for “everything else” nor what proportion of my total charge was dedicated to investment.

I am arguing, and this is radical, that the VFM analysis be carried out on the investment element of the workplace pension charge and then a separate analysis be done on whether the noninvestment based charge is worth paying.

Knowing the investment VFM is only part of the story. What am I getting for that 0.20% per year which doesn’t relate to investments? I would like to see a simple apportionment of this figure that shows how much went to L&G as profit, how much covered its corporate overheads, how much covered the cost of administrating my pot and how much subsidised the cost of dealing with my employer. If any money was spent on engaging me (L&G has just revamped its member website), I’d be interested in knowing that too.

I am arguing, and this is radical, that the VFM analysis be carried out on the investment element of the workplace pension charge and then a separate analysis be done on whether the non-investment based charge is worth paying. An overall VFM estimate must be holistic (e.g. take into account both VFM scores).

I appreciate that this level of disclosure would be very tricky for insurers, as it would expose them either to charges of profiteering, or of running pensions at a loss. The former (where an insurer’s profits are considered too high) could put pressure on margins, the latter might put investors (and indeed shareholders) off.

Of course we now know that my L&G fund costs not 0.13% but 0.19% (the difference being L&G’s estimate of transaction costs). This means I am paying in total 0.37% of my fund (about £120 per month) in management for which last year I got about £5,300 p.m. of growth.

But it is this level of scrutiny that is needed to keep insurers (and indeed the providers of master trusts) honest.

Such a simple equation is not good enough. L&G estimates that my management costs will remain pretty static, that growth could accelerate or decline according to markets, it is not in L&G’s gift to guarantee any level of growth. However, it can narrow the risk of loss through risk management which would add value. So a simple measure for me to value my growth is a formula which measures the absolute return and adjusts it by the amount of risk protection offered by L&G. Now I know the cost of this risk-adjusted return, I am in a position to know both the value and the money of my investment with L&G.

Death to the NDA My proposals are radical because they would require disclosure (at least to the Independent Governance Committee (IGC) of the fund management costs to the insurer a.k.a. “the pay-away to fund managers”.

They will not tell you what they are paying your fund managers with your money. They argue that this is to preserve the brilliant deals they have negotiated with those fund managers

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Currently these costs are under non-disclosure agreements (NDAs). NEST has an NDA, so does The People’s Pension. They will not tell you what they are paying your fund managers with your money. They argue that this is to preserve the brilliant deals they have negotiated with those fund managers. I say that these NDAs serve no such purpose, they are there to protect both the providers and the fund managers from margin pressure and these NDAs should be banned by the FCA. Once they have been banned, I would expect the IGCs to disclose the costs fund managers are charging your provider. L&G tells me that it pays to LGIM (its fund manager) what I pay for the fund. I’m not sure I believe this, I want the IGC to test it! But at least I know the ball-park with L&G. As for People’s, I’ve no idea what it is paying to State Street, nor what State Street’s hidden costs are, nor the investment administration charges within The People’s Pension for moving money around (life styling) nor any cost for B&CE reinsuring SSga funds. And because I have no idea, I cannot assess what the balance of People’s 0.50% AMC is actually paying for. I got into trouble with People’s management earlier in the year for assuming it was paying them huge bonuses. Well I may have been wrong about that, but until they lift the NDA on their fund managers, tell me what their hidden costs are and apportion the AMC, I am entitled to fantasize as I like. The ball is in your court, Patrick, Jamie, Roy and Darren. I say exactly the same to NEST, NOW: Pensions and all other workplace pension providers who will not tell me the absolute cost to the provider of paying fund managers.

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So, what if we get this new transparency? The current round of IGC reports show that, when pressed, insurers can reveal their costs. Master trust and SIPP providers are no different. Once costs are revealed, we need a way of organising the data so that people can make sense of it. Once the template has been delivered, it’s not difficult to have accurate cost disclosure figures delivered

Until this quality of information is available through IGC and trustee chair reports, I will not be comfortable with the level of provider disclosure within workplace pensions. Personally, I would like an (objective) investment VFM score created from accurate data by a credible data management and analyst. I would be interested in a (subjective VFM) score created by the IGC on the balance of the overall costs of the workplace pension (including the actual costs borne by employers which impact the contribution rate). But this subjective score will need to be accompanied by a proper cost benefit analysis of the noninvestment costs of the AMC, of member charges and of employer charges (which restrict employer contributions to member pots). Until this quality of information is available through IGC and trustee chair reports, I will not be comfortable with the level of provider disclosure within workplace pensions.

to IGCs in stunning detail. I do not propose that that detail be disclosed as a matter of course to members, they can have it on request. But I think that the aggregate cost data, together with absolute fund performance and risk adjusted fund performance can be published in the form of league tables.

Is this going too far? The financial services we buy are the least tangible products we purchase. In order to understand what we are buying, either we – or our fiduciaries – advisers, employers, trustees and IGCs need to be absolutely clear about cost

and value disclosures. There can be no fudging as we have no other way to judge what is going on. We cannot inspect our pension as we can inspect a house, we cannot drive our pension as we drive our car, we have no measure for what is going on other than this data. The burden of proof is with financial services providers. We see the flash offices and read about the big salaries and bonuses. We need to know that these are justified by the value delivered to us, the consumers. I am glad to say that, at last, I am seeing movement towards full and proper disclosure on all fronts. Julius Pursaill’s article would not have been written five years ago as there would have been no-one to read it. I hope this article is read by those who are taking the decisions on disclosure and that it is properly considered. I know I am right and will not stop until we get rid of the NDAs, get full disclosure of hidden costs and get proper league tables that compare the value for money of all the workplace pensions that we use. It is not “if”, it is “when” – I do not expect to be waiting in April 2018.

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 a fantastic source of oftenwitty 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 it’s not.

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The Transparency Task Force Teams The teams are the Transparency Task Force’s collective response to what we see across the global financial services industry that needs to change. We firmly believe that those who can see problems, admit to them and are motivated to tackle them should collaborate to put things right. It’s in everyone’s interest to do so. The Transparency Task Force teams are less about individual experience and more about understanding the potential power of working together to drive much needed change.




Improving transparency and professionalism.

Foreign Exchange

Challenging the opacity.

Market Integrity

Championing ethical practices.

Costs and Charges

Helping investors access better value for money.

Stewardship and Decision Making

Working to correct the ‘asymmetry of information’ problem.

Scams and Scandals

Raising awareness to help shut them down.

International Best Practise

Mutual learning to inform the Global Transparency Index.


Purpose, Impact Investing, Sustainability, CSR, ESG and SRI

If you want to make your opinion count by joining our 150+ strong group of volunteer team members, contact for more information and details of the monthly conference calls.

The Transparency Task Force Ambassadors While we value every member of our campaigning community, some go over and above. They are particularly aligned to our cause and, as such, are profoundly impactful for positive change. They are our Transparency Task Force Ambassadors. Name




Jackie Beard

Director of Manager Research Services EMEA Morningstar Europe Ltd

JB Beckett

UK Lead

Association of Professional Fund Investors


Steve Conley

Managing Director

Workplace Pensions Direct


Ralph Frank




Daniel Godfrey


The People’s Trust


Catherine Howarth Chief Executive



Con Keating

Head of Research

BrightonRock Group


David Pitt-Watson

Excecutive Fellow

London Business School


Robin Powell


The Evidence-Based Investor


Anna Tilba

Lecturer in Strategy and Corporate Governance

Newcastle University Business School



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How IG Group are championing fee transparency with the launch of IG Smart Portfolios


by Ian Peacock | Head of UK and Ireland at IG Group

Many wealth management providers fall short when it comes to transparency on fees of directto-consumer offerings, leaving investors in the dark about the true cost of investing and the impact it will have on their returns. As a global leader in online trading, IG has responded by launching a new offering in conjunction with BlackRock, with the aim of putting true transparency at the heart of direct customer choice. IG Smart Portfolios are a range of model investment portfolios constructed by IG using asset allocation insights from BlackRock. We are being fully transparent on the total cost of investing in our model portfolios. This is an important development because our research shows that whilst many investors are confident handling their own investment choices, a number are still being blindsided by fees. Hidden charges materially eat into investment

returns and it is crucial that providers are transparent about all fees upfront, so that investors know the exact costs they will incur. As we join the digital wealth management industry, IG is keen to show that a low cost online service leads to greater consumer control and clarity, without compromising at all on quality. There are no hidden fees when investors use IG Smart Portfolios, meaning our client’s investments will work harder for them. Every

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charge an investor may incur is fully disclosed prior to opening an account and at all times while they invest with IG. We’re totally committed to fee transparency. IG Smart Portfolios are constructed by IG using iShares® exchange traded funds (ETFs). The five risk-rated portfolios are constructed by IG based on asset allocation insights from BlackRock, the world’s largest asset management company. The ETF-based portfolios are rebalanced and continuously monitored by IG’s portfolio management team to respond to market conditions, delivering diversified, risk-assessed returns for minimal cost. The low cost of ETFs, combined with IG’s low management fees, will help maximise portfolio returns for investors. There are no set-up, dealing, rebalancing or exit fees. Investors will get complete transparency on the costs of the portfolios, with no hidden charges. Investors see the total annual cost of their investment which includes both the platform fee and the underlying portfolio costs. The platform also allows clients access to fractional shares of ETFs, ensuring their money is fully invested.

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Fee structure Total value of IG Smart Portfolios (per bracket)

On the first Between £50,000 £50,000 and £250,000

Over £250,000

IG management fee




Average ETF costs(1)




Total cost of ownership (TCO)




ETFs have a small charge built into their performance, known as the total expense ratio (TER). The average TER for the iShares® ETFs held in IG Smart Portfolios is 0.25%. This compares to an average ongoing charges figure (OCF) of an actively managed fund of 1.42% (2).

Market opportunity for online investing The launch of this new offering follows IG Group’s development of a market-leading share dealing offering in September 2014, built on our award-winning technology platform, including ISAs, and the introduction of our self-invested personal pensions

(SIPPs) offering in May last year. These developments are part of IG’s strategic aim of providing a comprehensive suite of products to investors and traders in the UK.

demand from investors for online solutions and transparent fees. Through our partnership with BlackRock, and building on our long-standing online trading technology expertise, we believe we have created a best-in-class offering for investors who are seeking an engaging digital low cost solution to their wealth management needs. For further information on IG Smart Portfolios and to read IG’s report on online investing, please visit:

Our research on investor demands shows a substantial market opportunity for online investing, with half of investors (52%) currently preferring to manage their investments online and four in five (83%) saying they could be persuaded to switch online in the future (3). The launch of IG Smart Portfolios is an important step in the development of our investment offering. We see a huge opportunity in online investing, with strong

Ian joined IG in February 2015 as Head of UK & Ireland and has been instrumental in driving the expansion of the group into share dealing and digital wealth management. Ian began his career in financial markets at the London Stock Exchange (LSE) where he spent his formative years involved in the transformation of the London equities market from a quote-driven system to an electronic central market structure. He joined the Credit Agricole group in 2004 where he remained for 10 years, working initially in America, as US CEO, and subsequently in Europe, as UK CEO of the Cheuvreux equities franchise. Ian sat on the Global Equities Executive Committee and the US and UK management committees of Credit Agricole CIB. Ian is a Sloan Fellow of London Business School graduating with Distinction and has a Bachelor Degree in Computer Science from the University of Leeds. (1) T  he Total Expense Ratio (TER) for the ETFs in an IG Smart Portfolio is subject to your portfolio allocation and will be between 0.22% and 0.27%. (2) Investment Association: Investment costs and performance (August 2016). (3) Research conducted by Opinium from 23 – 29 August 2016, with 500 UK investors / high earners.

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HUGE thanks to

... for being the very first organisation to host a Transparency Symposium outside the UK.

Come and join us in Cape Town on 24 January 2018

We’re looking for speakers, panellists, delegates, media partners and sponsors. If you’re interested or would like more information, please contact If you don’t yet know about the services provided by Allan Gray you can check out their website here

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the lang cat view Each month the lang cat shares its cat’s eye view of all things transparency-related.

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This month, consulting director Mike Barrett poses the question …

Why are people still saving into cash? April saw the latest release of ISA stats from HMRC. Set against a backdrop of the household savings ratio being at a generational low, it doesn’t make pleasant reading. Over the last year, £120bn ended up in cash ISAs, compared to £43bn for stocks & shares ISAs. The number of subscriptions was down, the total amount subscribed was down, and cash still rules. Ouch. Already we’ve seen the usual provider hand wringing, bemoaning how people are choosing to save into cash rather than investing in (their) stocks & shares ISAs. Whilst generally self-serving, they do have a point. People are not saving enough. And a good proportion of those who are could do more with their money. The reality is that if you are involved in the investment industry, whatever you are doing to try to convince people to invest isn’t working. The starting point for change is the industry hearing what these ISA stats are really saying and using that understanding to reach consumers in a different way. One that takes their concerns into account and addresses them in an accessible manner. Loss aversion is an increasing obstacle. The fear of loss is outweighing the positive of potential gains, even in an environment where saving into cash represents a certain loss in real terms. The FCA’s own consumer research shows that people tend to focus on the here and now, and are using less structured and more personal decision making. By recognising this, providers can start to build solutions offering a gentler step between cash and the scary world of investing.

Crucially, providers need to explain risk to consumers in a way that resonates, not alienates, and the regulator needs to help make this happen. A quick glance at some of the emerging online propositions, most of whom will have gone through the FCA’s Fintech programme in some shape or form, reveals an almost uniform approach to suitability and risk assessment. Almost every proposition I’ve seen, ranging from the smallest start-up to high street banks have a linear process whereby you are recommended to hold three months’ salary in cash “for emergencies” and are then taken through a risk questionnaire. Most explain risk in terms of volatility. Very few quantify the potential for loss. No wonder people stick with the comfort blanket of cash. For most investors risk is not about volatility, it’s much more personal. The risk of saving/investing inappropriately, the cost of delay, of not actually doing anything can in some cases do more damage than whether you are a risk level 4 or 5. However, I’m still to see anyone explain this to an investor in a way that allows them to make an informed decision as to the risk/return trade-offs they are willing and able to make. There are some bright spots of innovation though. The Moneybox investing app that rounds up your spending to the nearest £ and lets you invest the proceeds is one, or Chip which automatically saves for you, and I wonder if this is where the answer lies. More personal, more accessible, easy to use to the point of being automatic. Getting people to save and invest intelligently, or at least with some sort of discipline, and removing the need to think about it too much. Maybe this is where providers should focus their efforts, developing new innovative solutions, instead of the old tried and tested methods, which based on current evidence seem to be failing all concerned.

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AON, Mercer and Towers have lost the PR war on DC master trusts


28 APRIL 2017


In 2022 it may transpire that the DC master trusts offered by Aon, Mercer or Willis Towers Watson (WTW) were the smartest purchase of employers in 2017. That they had the optimal asset allocation, governance, comms and were great value for money. But until the market has that proof, these trusts will suffer accusations of conflicts of interest with their firms’ main consulting business. The FCA is already predicted to force the big three to separate their fiduciary management and DB advisory businesses. Might the same happen here? It need not be this way, but the marketing language that I have seen from WTW and Aon only confirms suspicions their master trusts are more about driving sales than offering great value. Towers’ Lifesight website uses phrases such as ‘market leading administration services’, ‘cutting edge member engagement concepts’, ‘low cost, high performing investment options’ and ‘the latest innovative thinking from our specialist teams’. Aon’s literature is largely sizzle too. The best international pension funds do not operate like this. They talk about their performance, their investments, their scale and how they have used it to benefit members. They do not rely on marketing promises alone.

Would a fund manager be able to get away with this? How did it get to this? Both firms are magnets for the brightest graduates and otherwise have the

My own theory is that the secrecy with which each firm guards its IP from its competitors means they do not want to give hard facts and figures out in public. highest standards. They should be leading the way. My own theory is that the secrecy with which each firm guards its IP from its competitors means they do not want to give hard facts and figures out in public. Talking of figures, the FinTech pensions aggregator PensionBee recently showed me the DC providers slowest at transferring out their customers’ pensions

based over a recent time period. Willis Towers Watson was close to bottom of the class, not least as it apparently does not use Origo, the industry-wide initiative to enable quick electronic transfers. We are, it should be said, at the phoney war stage of DC in the UK. Employers have done their due diligence, balanced it with hunches, emotional reactions, fee considerations, all the usual reasons why people buy stuff, but there is no easy way for them to get comparisons of performance unless they go to their own, possibly conflicted, consultant. In Australia, distribution of 1, 3, 5 and 10-year performance figures for super funds is public knowledge and fairly easily accessible. Funds live or die by such figures. Specialist performance ratings agencies unconnected to DC providers such as Chant West and SuperRatings provide this service. Who is going to provide this service in the UK?

David Rowley has been a journalist for 25 years, the past 16 of which have been in the pensions and investments space. He is a freelance journalist and a blogger at He spent three years in Australia interviewing CEOs and CIOs of superannuation schemes as editor of Investment Magazine. Prior to this he edited Pensions Week, Employee Rewards and Benefits and was deputy editor for Professional Pensions.

of The Director y ncy Pro-Transpare Organisations

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A business shouldn’t stand out because it’s ‘pro-transparency’, it should be the norm. If you lead a pro-transparency organisation, join those already advertising in our directory. The more firms are seen here, the more weight gathers behind our argument that transparency is a commercial virtue and not a threat. We’re happy to consider classifications beyond those shown here. Please contact for more information.

ACADEMIC INSTITUTIONS Prof. Dr. Heinz-Dietrich Steinmeyer University of Muenster, Germany School of Law, Universitätsstrasse 14-16D-48143 e: Muenster phone: 49-251-8329744 m:49-171-8384816 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.

AUTO ENROLMENT Steve Conley, Managing Director, Workplace Pensions Direct e: w: t: 0113 457 4563 m: 07850 102070 Since 2015, Workplace Pensions Direct has made auto-enrolment simpler for small businesses, enabling employers to focus on running their companies without having to worry about pension law, and the cost of poor pension decisions. Workplace Pensions Direct offers an affordable, end-to-end, auto-enrolment solution that guarantees compliance with the law. With professional expertise, a century of payroll and pensions experience, and professional indemnity insurance – Workplace Pensions Direct has removed the worry and risk of autoenrolment for thousands of small businesses and their advisers. Gavin Perera-Betts, Chief customer officer, NEST e: w: t: 020 3056 3719 NEST has been set up by the government especially for auto enrolment. We’re here to make sure that every employer has access to a workplace pension scheme that meets the requirements of the new pension rules. But we do more than just meet the regulatory minimum. NEST comes packed with the sort of high-quality features you need, whether you’re saving with us, using us for your workers or helping your employer clients.

COMMUNICATIONS CONSULTANTS Lesley Alexander, Managing Director, Ferrier Pearce e: w: t: 020 3772 5360 Transparency – clarity, straightforwardness, honesty. As communications consultants, we support transparency in financial products, especially long-term savings. This applies not just to charges, but to the way we describe the products and their benefits to consumers. We believe the language we use should be clear, unambiguous and direct, helping people to make the most out of their money.

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DATA SERVICES Larry McLaughlin, CEO | GSAV Ltd e: w: t: +44 203 655 2182 m: +44 7771 978 118 US m: x+1 646 946 5272 GSAV Ltd is Reg Tech/Fin Tech company exclusively serving the Buy-Side and delivering pricing solutions in the Collateral Lending Market to benefit Beneficial Owners and enable Managers to meet their Fiduciary and Regulatory obligations. GSAVr is a specialist pricing, tracking and regulatory tool and provides an independent price for collateral lending transactions that defines rate and use in a manner that the Regulators feels meets the test of both price and use. GSAVr is the only solution available today that addresses the current challenges of any form of collateralized lending, full price discovery and full price transparency.

David Rich MIod, CEO | Accurate Data Services e: w: t: 01603 813366 m: 07919918623 David is Chief Executive of Accurate Data Services, a specialistdata 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.

FIDUCIARY MANAGERS Ralph Frank, CEO DC (UK), Cardano e: w: t: +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.

FINANCIAL PLANNING Mike Stafford CFP, Director, Stafford Wealth Management e: w: t: 01992 501601 Stafford Wealth Management was formed in 1986 to provide bespoke lifestyle financial planning and investment services to private clients. It is one of a small number of elite firms in the UK that is accredited by the Chartered Institute for Securities and Investment. Stafford Wealth Management is authorised and regulated by the Financial Conduct Authority for investment business.

INVESTMENT CONSULTANTS Marcus Whitehead, Head of Investment Consulting, Partner, Barnett Waddingham e: w: t: 0333 11 11 222 Barnett Waddingham has grown to become the UK’s largest independent provider of actuarial, administration and consultancy services. Our total headcount is now over 850 – with offices in seven locations around the UK. The investment consulting practice provides bespoke, independent investment advice to over 360 pension schemes with assets from the millions to billions. We continue to provide the personal, quality, tailored approach that has made us successful and has led to high levels of client retention.

INVESTMENT GOVERNANCE CONSULTANTS James N Meenan, Principal | JNM Investment Governance e: w: t: +353 (0)1 687 1027 m: +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.

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Henrik Pedersen, Managing Partner & Co-Founder, Clerus LLP e: w: t: +44 20 3356 2845 m: +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?

INVESTMENT MANAGEMENT Robin O’Grady, Head of Business Development, Hawksmoor Investment Management e: w: t: 01392 410180 m: 07468 697900 Hawksmoor specialises in providing high quality discretionary investment management services for private clients including trusts, pension schemes and charities. We are a privately owned business with no ties to a bank or any other financial institution. Our experienced and well qualified team of investment professionals is focused solely on providing clients with the best service and consistently good performance.

NOT FOR PROFIT Dr. Kara Tan Bhala, President & founder, Seven Pillars Institute for Global Finance and Ethics e: w: t: +1(785)865-8824 (mobile) Seven Pillars Institute (SPI) for Global Finance and Ethics is an independent, nonprofit 501(c)(3), nonpartisan, organization whose mission is to highlight and analyze issues of moral philosophy in global financial markets with a view to enhancing ethical practice and policy.

PENSION ADMINISTRATION Margaret Snowdon OBE, Chairman, Pensions Administration Standards Association e: w: m: 07983 565955 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.


COLOURS CMYK C100 M88 Y0 K0 C0 M0 Y0 K0



Arno Kitts, Founder & Chief Investment Officer, Perspective Investments C0 M0 Y0 K0

e: w: t: +44 20 3290 6486 Perspective Investments is a multi-asset multi-strategy investment COLOURS CMYK C100 M88 Y0 K0 manager. We invest on behalf of our clients, including our founder C0 M0 Y0 K0 family. Our commitment to our clients is to help them achieve their financial objectives. We do this by aiming to deliver higher returns with lower volatility and better capital CMYKour investment performance track record preservation than conventional equity portfolios. Of course, COLOURS while C100 M96 Y8 K5 is consistent with this aim, past investment performance is not necessarily predictive of future results. C0 M0 Y0 K0


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Giving ESG its dues: the challenges for the fund sector



by JB BECKETT | UK Lead, Association of Professional Fund Investors

The rapid pace at which the funds industry is moving creates a danger that fund selectors will be left obsolete. The role is already being challenged by the shift to passive investing, and the regulatory pressure on fund selectors continues to mount. The headwinds facing fund selectors are further stiffened by the growing environmental, social and corporate governance (ESG) requirements placed upon them. Yet it is their role in understanding, promoting and integrating ESG that arguably makes fund selectors more important now than ever before. This is neatly illustrated by the latest annual questionnaire for the UNendorsed Principles for Responsible Investing (PRI). While those familiar with the PRI private equity due diligence template probably found the 2017 questionnaire less of a shock and awe experience, the list of questions took many of us by surprise. However, the list also tells us much about the standards we must strive to attain and set the bar for what should now be considered best practice. As an asset owner with ÂŁ160bn under management and some six million customers, Scottish Widows (part of Lloyds Banking Group) has a responsibility to make good, long-term decisions on their behalf.

Duty calls

Added hygiene

There is also both a fiduciary and a moral duty to demonstrate best practice when it comes to integrating ESG into investment decisions.

To discern the comparable quality of respective managers goes well beyond a hygiene tick-box exercise. Now, fund selectors and distributors are encouraged to assess all funds with a drive to assess ESG and stewardship at a company-wide level.

To that end, Scottish Widows has created a new Responsible Investing governance framework to support the Group’s signing of the UN PRI. Arguably many UK insurers have been behind other markets in developing responsible policies, initially passing such decisions to their in-house asset managers. Scottish Widows has no internal asset manager and so cannot so easily delegate. The framework therefore reflects the growing awareness of our own stewardship, importance of corporate governance and climate change, but this is just the start of what will be a long journey for our industry. There is a bewildering choice of ethical, ESG, impact and sustainable strategies, each different but all gradually increasing their market share.

The modern ESG-minded fund analyst must try to balance four key areas:

Assessing the investment case Weighing up the investment outcome against the ESG outcome: searching for evidence.

Assessing effective ESG integration Assessing the quality of the investment process versus ESG process.

Identifying parallel ESG and Reconciling poor investment outcomes from fund managers investment processes as opposed to true integration. with strong ESG processes

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Assessing the quality of ESG processes

Does the ESG function have a Weighting ESG and other factors into an overall fund or red flag option? Does it have a good escalation route if firm assessment/score. necessary? Applying different ESG lenses as they may relate to, say, a quality growth manager and a value/recovery manager.

Relative scoring of fund managers who apply a proprietary corporate voting function versus outsourcing to the likes of Hermes EOS or ISS.

Scoring a fund with a good ESG manager but poor firmwide processes (and vice versa).

Reconciling a good investment culture with a light-touch ESG policy.

Scoring managers who use discounted cash flow analysis but do not yet incorporate ESG into their model.

Assessing the respective merits of negative versus positive screening and allowances for stocks below certain % of earnings thresholds.

Weighing the value of ESG indices versus an active approach.

Understanding the extent of internal oversight of the ESG process; there is a growing trend towards independent advisory boards.

Quantifying the nonstardardised greenhouse gas emissions footprint of a fund manager.

Assessing the quality of the ESG team as distinct to the portfolio team.

The breadth of different philosophies and approaches is underscored further in on-site meetings with ESG teams. While many are very good at talking about ESG, they’re less certain about how it is integrated into the investment process.

ESG has sat neatly on the periphery of the investment process, there to serve the niche liberals and twin-motive charities. No longer.

ESG has sat neatly on the periphery of the investment process, there to serve the niche liberals and twin-motive charities. No longer. A defining change for ESG will be the growing due diligence by cynical yet inquisitive fund selectors who typically have far greater investment experience than many within the

ESG teams. This may in turn change how asset managers resource ESG, as it moves from niche and third sector into sharp focus in the institutional and retail mainstream.

performance outcomes. It goes without saying that we cannot add funds purely on ESG grounds unless there is a specialist mandate requiring just that.

Due diligence

So fund selectors face a dilemma: adding more ESG is a risk that requires conviction and a supportive empirical case. As we add more detail into our DDQs, how far should we expect fund managers to respond? Should we get down into the minutiae of checking logs of ISO 14001 compliance at the stock level, or voting activity? Or should we simply check and test that the manager has an effective ESG and corporate governance policy? At which point does it become immaterial noise and we lose sight of the investment outcome?

The challenge for fund selectors and fund managers is underlined by the fact that a typical due diligence questionnaire (DDQ) already contains around 50-100 questions (perhaps more) before you add any questions relating to ESG. Far greater efficiency is needed in the DDQ and request for proposal (RFP) process before fund selectors can adequately incorporate the rising demands of the ESG community. Digitalising content into E-DDQ platforms will be key, as will agreeing universal standards for the DDQ. Yet fund selectors have to reconcile this with their reality, which is that they are typically measured on

Take the US as a topical example. We appear to be witnessing a government u-turn on a number of key environmental and stewardship policies (what should

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investors make of the cut in the Environmental Protection Agency’s budget?) and an acceleration of flows into (and hence assets held on) the S&P 500, an index that has an opaque decision structure and no official ESG policy of its own.

Free rider? The very real danger is that as fund gatekeepers we collectively overlay ever-tougher ESG considerations onto active managers while passive managers seemingly get a free pass. Clearly this is not the right approach and index and passive providers should come under greater scrutiny from fund selectors to deliver good stewardship and sustainable development goals (SDGs). Demonstrating engagement with the fund manager is essential to effective stewardship. How they invest into US securities will be key, and fund selectors will especially be watching US fund groups and subsidiaries. The issues that arise are complex and therefore the assessment of how managers implement good ESG itself becomes complex. For example, we recently engaged our fund managers following the green light on the Dakota pipeline (and Nordea’s response to stocks involved, like Philipps 66), Allianz Global Investor’s proposal on oil executive remuneration and the Nigerian corruption allegations involving Eni and Shell (relating to the OPL 245 oil field). We start with good conversations, but a good investment and ESG knowledge is needed. Then what? It helps if the fund selector has a framework behind the DDQ so that material events and ESG factors can be considered objectively alongside other information.


Wait and see

The analyst assessing whether ESG integration has occurred within a fund needs to engage not only the ESG team but also the fund manager separately to validate and evidence. The ‘Profile’ factor in our proprietary ‘P6’ framework includes aspects of ESG, investment culture, remuneration and stewardship.

This will tend to encourage a ‘work with and wait’ approach, rather than ‘sell and search’. In many ways, this is the very same challenge facing fund managers in dealing with companies. Churning fund managers purely on ESG factors alone is arguably unwise and not obviously covered by Treating Customers Fairly outcomes. Back to the fund selector.

It is one of six factors alongside People, Philosophy, Process, Portfolio and Performance that contribute to a holistic scoring of a firm, fund and fund manager. Since last year our DDQ template has included a dedicated ESG section, building on earlier stewardship questions and issues (such as cluster munitions) that have been considered for a number of years.

How we capture issues in our DDQs and engage fund managers on responses is far from being universally agreed.

Having added a fund, the selector faces the challenge of monitoring, governing and potentially contending with under-performance (if arising from sticking to an ESG process) or with strong performance but ESG failures. That debate appears dominated by polar opposite camps, with a lack of discussion for those of us caught in the pragmatic middle. ‘We support ESG but must put individual customer needs first and foremost’, is a typical and understandable view.

We should not passively rely on the Nordic fund buyers to provide leadership; they have been the most progressive but the UK is a far larger fund market.

Talk is cheap; doing is where the value lies. And fund selectors need to see more than punchy CEO platitudes or a flashy website to gauge if a funds house has truly embedded ESG.

Talk is cheap; doing is where the value lies. And fund selectors need to see more than punchy CEO platitudes or a flashy website to gauge if a fund house has truly embedded ESG.

JB has been a fund selector for over 16 years and is Senior Manager, Fund Manager Assessment at Scottish Widows. He is also author of ‘#NewFundOrder’ and an Ambassador of the Transparency Task Force.




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Transparency Times June 2017, Edition 14  

The Transparency Times is the official publication of the Transparency Task Force, the collaborative, campaigning community dedicated to dri...