Transparency Times #38 June 2019

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June 2019

This month’s contributors are: Andy Agathangelou

Margaret Snowdon

Lesley Curwen

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Pension Scams Industry Group

Transparency Task Force

Steve Conley

Rev Paul Nicolson

Sital Cheema

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Academy of Life Planning

Taxpayers Against Poverty

Jaanu Consulting

Get in touch if you wish to place an article! Edition #38 June 2019

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

3 Andy Agathangelou: Attention please! - Important notice for anybody involved with the Payments Sector 6 Locations for Symposia 8 Upcoming Events 11 The TTF Ambassadors, Special Interest Groups and Advisory Board - Find out more 12 Transparency Trophy Winners 14 Margaret Snowdon: Give scam victims a tax amnesty 16 “Transparency detectives” & “Money Box Live” recognised through prestigious journalism award 18 Steve Conley: Principles-Before-Profit Pays 22 Reverend Paul Nicolson: No Transparency in a local authority audit 26 Sital Cheema: Active versus passive debate....the solution is a practical and holistic approach to Total Portfolio Management 32 Get Involved


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TTF COMMENT: Attention Please! - Important notice for anybody involved with the Payments Sector I am pleased to advise that a new Transparency Task Force Special Interest Group is being formed, covering the Payments Sector. The Payments Sector is a remarkably important part of the financial ecosystem. It includes credit cards and all other forms of financial payment systems. The sector is in need of reform to help

not being adversely effected by hidden costs being applied to themselves or the retailers they make purchases through • Highlight the importance of payments as a financial services product in its own right, as well as payments being a critical UK and global economic infrastructure

latory and policy initiatives, such as the UK future of cash review and EU payment card regulation review The inaugural conference call for the new SIG will be on Friday 19th July from 09:00 to 09:30. If you might want to be added to the new SIG (whether you are available for the inaugural call or not) please email me at and of course you are very welcome to let others know about this new SIG if you think they may have an interest in it. Furthermore, here’s a list of all our other SIGS:

ensure the consumer is being treated fairly. As with all our SIGs, the new Payments SIG will be guided by TTF’s “North Star question” which is “What’s best for the consumer?” In general terms, the purpose of the new SIG will be to: • Help ensure consumers are

• Inform stakeholders of the major changes in the payments market, especially the replacement of cash with digital payment methods • Share knowledge on major market and regulatory developments, such as Open Banking and the Revised Payment Services Directive (PSD2)

• Global Transparency Index • Market Integrity • Costs & Charges • Foreign Exchange • EMEA • Pensions • Fintech

• Respond to strategic regu-

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• Communications • Banking

• Investment Consulting & Fiduciary Management

• Anti-Scams

• Compliance/Legal/Audit/ Regulatory/Governance/ Custodian/Risk Management/ General Counsel


• Whistleblowing

• Asset Management

• Private Equity

• Financial Stability

• Hedge Funds


If you would like to know more about any of our SIGs and how they operate, you

• Financial Planning

• Americas


can access further information through the link below, noting that it is free to join any of our SIGs: …and get in touch if you believe there is an important part of the financial ecosystem that needs greater transparency that is not yet being dealt with by the TTF.

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New York




Hong Kong

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Chicago Please make contact if you want to participate in any of our thought leadership events taking place right around the world in 2019 Edition #38 | June 2019 | | The Transparency Times



Time for Tra “How can we accelerate the rebuilding of t

The below events are all part of a major 5-year international effo

of trust in financial services. We believe our 5-year internationa

on an international basis, and we are bringing together key sta

importance: “How can we accelerate the rebuildin

Washington D.C. venue wanted Tuesday 10th September New York Wednesday 11th September at Grant and Eisenhofer Boston Thursday 12th September at First Republic Bank Hong Kong Thursday 10th October at RPC

For any enquiries about the above event please mak conta


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ansparency trust and confidence in financial services”

ort to deal with a troubling “elephant in the room” issue; the lack

al project is the first serious attempt to deal with the trust deficit

akeholders to do it. We will be tackling a question of immense

ng of trust and confidence in financial services?”

Sydney Tuesday 15th October- Dimensional Fund Advisors Melbourne Thursday 17th October at Mercer Singapore Tuesday 22nd October - venue wanted

act through

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O THE R UP C O M I N G E V E N T S Time for Transparency “The CMA’s Final Report and Final Remedies” Tuesday 23rd July

Venue: Irwin Mitchell, London For any enquiries about the above event please make contact through

All places must be booked in advance


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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.

The Transparency Task Force Advisory Board The Transparency Task Force has now grown to the point that an Advisory Board is now needed to formally shape our purpose and strategy moving forward.

The Transparency Task Force Special Interest Groups

The TTF Special Interest Groups are our collective response to the extensive need for reform of the financial services sector, right around the world; there are now 22 Special Interest Groups. We believe that those who are aware of issues should collaborate with others to put things right it’s in everyone’s interest to do so. Our Special Interest Groups are all about understanding the potential power of working together to drive much needed change by harnessing the transformational power of transparency. Each of of our SIGs have a conference call quarterly.

The Transparency Times The Transparency Times goes out to over 10,000 people, If you would like to submit an article please click the find out more link.

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RECENT W London Dublin


Caroline Hopper, Senior Writer, Quietroom


Paddy Delaney, Director, Informed Decisions

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Paolo Author & Thought L Watson Serv

WINNERS: Zurich Brussels


Sironi, & Fintech Leader,IBM Financial vices

Josina Kamerling, Senior Writer, Quietroom

Guy Spier, CEO, Aquamarine Capital

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by Margaret Snowdon | Chair | Pension Scams In

I am pretty tolerant in the main, but if th it is unfairness. Pension scams are decidedly unfair in taking advantage of people, but there is an institutional unfairness emerging, and it’s not about scammers. It’s about how scam victims are treated by those who should know better. I’m talking about HM Revenue and Customs.

times marketed as a tax-free lump sum or a permitted loan. Unauthorised payments are where the member received cash from a scheme (and it may have been a properly registered UK pension scheme) before they were allowed to under regulations

Most commentators accept that a billion pounds has probably been lost to pension scams of one sort or another and that scam activity has been accelerating over the years. We know that victims can lose much of their pension savings to dodgy deals and we feel sympathy and rage that the money is rarely recovered. What we don’t often hear about is the unfair tax treatment of many people who fall victim to pension scams, where as part of the deal they received a cash sum - some-


or for more than they were permitted, i.e. more than 25% of their fund. You might think that those victims are the lucky ones, as they got something back, but HMRC views them as tax evaders and levies on them unauthorised payment

charges of between 40% and 55% of the amount they received. It also levies a similar scheme sanction charge on the scheme that made the payment. It has also levied sanction charges on schemes that inadvertently pay a transfer to an unauthorised scheme (typically a QROPS that was dropped from the HMRC register of qualifying schemes before the transfer payment was made). Unauthorised payment charges are right and proper, designed to discourage people from participating in tax evasion schemes set up to unlawfully avoid paying tax. Scams victims are hardly in that category. They are typically ordinary people with understandably limited knowledge of complex pension and tax regulations and they are persuaded, sometimes by regulated advisers, to transfer

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15TH APRIL 2019

ndustry Group

here is one thing I hate, to schemes that with hindsight turn out to be vehicles making unauthorised payments.

Margaret is a Pensions Professional and experienced NonExecutive Director, focused on good outcomes and highquality services that don’t cost the earth.

Victims are hurt by the scams, they suffer anguish from being fooled and are dealt a further blow by having tax to pay on top. They feel like criminals. The human cost is significant and every year they are reminded of how much tax plus interest they owe; many simply cannot afford to pay – they often took the transfers in the first place because they needed the money.

She is a Non-Executive Director of the Pensions Regulator and an Independent Non-Executive Director of XPS Pensions Group plc. She is also an Independent Non Exec Director of the Phoenix Group With Profits Committees, having previously served as a Member of their IGC for almost three years. She previously held Partner and Director level positions with leading employee benefit and financial services companies.

I would argue that the tax penalty is out of touch with modern pension scams and allowance should be made for those transfers that happened before the Pensions Regulator’s strong Scorpion Campaign was launched on Valentine’s Day 2013. HMRC should show their human side and give an amnesty to those unfortunate people who have lost much of their pension savings through ignorance. It is doable and fair. If you would like to learn more about Mallowstreet, see this link: https://www.mallowstreet. com/

She is Chairman of the Pensions Administration Standards Association and also Chair of the Monitoring Board on Incentive Exercises and chairs the Pension Scams Industry Group that developed the Combating Pension Scams Code of Good Practice. She is a Governor and member of the Council of the Pensions Policy Institute and is a Fellow and former Vice President of the PMI as well as Fellow and past Chairman of The Pensions Advisory Service. She has recently joined the Pensions Advice Taskforce set up by the PFS to improve ethical standards in transfers advice through a Code of Good Practice. Margaret was an independent member of the Steering Group for the original HM Treasury Pensions Dashboard project and continues to advise DWP on the topic. Margaret was appointed an OBE in 2010 and was, uniquely, for seven years running named as one of the Top 50 Influential People in Pensions and was awarded for her outstanding contribution to the pensions industry by the PMI in 2012. In 2013 she was listed as one of the Top 100 Women in Finance in Europe, in 2014 was named Pensions Personality of the Year and in 2017 was voted “Industry Champion”. In 2018, she was voted the inaugural Pensions Woman of the Year.

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BBC Radio 4 Programme has been recognised by Wincott Awards for Financial Journalism. They awarded ‘The Transparency Detectives’ and ‘Money Box Live’ the prize for Audio Journalism of the year. The two programmes, which detailed the work of transparency campaigners, were broadcast on BBC Radio 4 last year. Among the interviewees were Chris Sier, Andy Agathangelou, Eric Veldpaus, Jeff Houston, Hilary Salt and Gina Miller. The citation from the judges said presenter Lesley Curwen ‘embarked on a mission to expose hidden fees paid by savers and investors’. It concluded ‘patient journalistic skills and international research contributed to a strong case for change’. The award was presented by the judges’ chair, Sir Richard Lambert at an event at the Mansion House in the presence of the Lord Mayor Locum Tenens, Alderman Ian Luder. To listen to ‘Transparency Detectives’, see this link: For episodes of ‘Money Box Live’, see this link:

The above pict Lesley Curw aw


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y the judges of the Harold

Lesley is a Wincott Awardwinning business and personal finance journalist, a BBC broadcaster for File on 4, Money Box and In Business. Investigative reporter. Fighting for transparency in financial services She is a former presenter on Radio 4 ‘Today’ and BBC World Service ‘Business Daily.’ Ex TV presenter, BBC World and News Channel business. First journalist to be awarded Transparency Trophy for promoting openness in finance. Winner of three Wincott Awards for Financial Journalism. Lesley is also a maker of dozens of BBC documentaries and investigations.

ture shows, from left to right, Sir Richard Lambert, wen and BBC producer Rosamund Jones at the ward ceremony at the Mansion House.

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by Steve Conley | Founder | Academy Of Life Pla

Everyone has heard about Stephen Covey’s fourt bankers believe in this? Is this what they do in ev Everyone knows that banking is the least trusted industry globally. And, what matters least to bankers matters most to the holder of the promise to pay the bearer on demand. Trust! Organisations act independently in highly competitive and low trust environments. They adopt win-lose systems, such as the ‘rank & yank’ reward schemes for their employees.

of impact on communities or ecosystems confined to lobby walls.

moment where you’re the only one in the room who placed principles first?

Should we be surprised, considering the composition of financial service boards? According to studies from US Trust, only one in five baby boomers or Gen X consider impact when looking for financial performance. Why should we expect the bank boards to fare any better?

Ranking profit and yanking principles from financial establishments.

Could it be worse? Perhaps one in ten even? Selection bias within the banking sector can systemically skew results to keep the top roles in banks out of reach of those who don’t fit the mould. Those with their seat at the table are far more likely to invite favourite members of their own networks to fill spaces that open up beside them.

Principles-before-profit executives can often be treated with suspicion, feared and frowned upon as harmful to financial targets. Yet, it is these very same executives who deliver the greatest financial results in organisations. They recognise that market participants are interdependent, and by raising levels of trust they can create new markets and profit as early adopters and leaders.

If win-win isn’t being delivered, how quickly can campaigning communities change things? Does this present an opportunity for up and coming firms to take the lead? And, meanwhile what can be done to help the bank customers who lose? We see profit-before-principles in many a banker’s strategic statements: deliver growth, improve returns, grow market share, improve capital efficiency – placed before empower people and enhance customer experience in their reports; with mention


More win-lose thinking is a who-you-know problem. Have you ever been ridiculed, bullied, or sneered at by the boss for being Mr or Mrs Ethical? Have you ever found yourself at a board meeting in that tumbleweed

You will have proposition architects within your organisation capable of delivering win-win scenarios. You will recognise the principle-before-profit executive by their results. Initially, they will come to your attention and ascend the corporate ladder based on these very same outstanding achievements. They deliver market firsts. They create new markets. They deliver market leaders. They win national and international awards. You will be familiar with platforms and retail multi-as-

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th habit, win-win. However, do veryday work life? set funds, now used by eight in ten investors. They were designed based on win-win scenarios. Market participants collaborated and new markets were created as old ones disappeared. I was part of the team who first designed them. For impact and better consumer understanding, I describe those nine in ten on the boards who place profit first as - greedy bankers. Here’s the thing … Principle-before-profit propositions are 14-times more profitable for organisations. Studies conducted by Raj Sisodia

outlined in his book, Firms of Endearment: How world-class companies profit from passion and purpose, show that winwin mentality in boardrooms leads to higher returns. Firms of Endearment outperformed the markets 14-fold over a 15year period. Though greedy bankers remain wedded to the myth that behaving ethically negatively impacts returns, the truth remains that principles pay, and then some! Look at the many studies from city analysts that highESG-rated companies deliver higher long-term growth than the markets for lower tail risk.

Steve Conley is the founder of the Academy of Life Planning, and the author of Your Money or Your Life: Unmask the highway robbers enjoy wealth in every area of your life! Available on Amazon. Steve is an ambassador for the Transparency Taskforce, a leader of its Market Integrity Team and participant on other teams. He was awarded the Transparency Trophy in September 2017. Steve is the former head of investments at HSBC and former chair of the British Bankers’ Association’s bancassurance steering group in the run up to RDR.

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That elusive higher return for lower risk that investors seek. Look and see for yourself. These studies are not so hard to find and yet their conclusions are hard to ignore.

We sought and found the world’s most trusted adviser model. Tried and tested it. Proved concept. Presented it to the board of HSBC. The model was simple – plan

Principles pay.

Why was it rejected by the board?

Don’t simply think of the financial return …

If you recall the UK Retail Distribution Review in 2013 – the advisers and planners (we shouldn’t call them that, they were clearly product sellers) would no longer be remunerated by product sale (with the disappointing exception of vertically integrated firms). An adviser postRDR would have to add value by the advice they gave!

Think of the social, environmental and cultural returns left on the table. You are selling financial solutions to people. I too was part of a team that sold them. This is what happened to me. From 2002 to 2012, my team’s propositions grew bigger and bigger in the banks. My employers were taking billions of pounds in sales annually whilst delivering better outcomes for customers – putting control at their fingertips, eliminating inefficiency, eliminating unnecessary costs, democratising what private and institutional clients were getting to retail, etc. So finally, I decided to take on the biggest challenge our industry faces. That same TRUST!


been £1 in £8. Four customer meetings resulting in four sign ups, as opposed to one sign up. I’m sure you would agree; the customer relationship dividend was more than 14-times more profitable.

The boards of British banks looked through the rear window on wealth – and decided with all the scandals, fines and redress operations, that it had proved a zero-sum game. the client before you plan the money. The result? According to customers it was “the best financial conversation in a lifetime”. After it they would gladly take £8 invested elsewhere and put it as £8 in the system. Previously, it had

The boards of all British banks decided it would be far easier and more profitable to lay off all the industry’s 10,000 financial advisers and focus marketing budgets for the next decade on debt instead. Let’s face it … the banks profit considerably on charges

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and interest payments when their customers are in a mess with their finances. Why plan people? Why change it? Unplanned pays. Therefore, it works. The impact was horrific! 95% of the UK population became underserved by the wealth industry overnight on account of their limited wealth. Instead, the banks pushed debt and work slavery to service debt. 60% (and rising) of the UK population are now just two pay-cheques from the bread-line. Shackled by debt to the treadmill of work existence under a false promise that they can buy freedom in their last 16 years. The average unsecured debt is today half annual pay. Pension pots are so small they simply displace means tested benefits in retirement. The winners: Bankers, politicians in the pockets of bankers and the mercenary media paid to promulgate propaganda on bankers’ worthy principles.

glacial pace. What happens within the next 20 years is key. Millennials are forced to hand over life savings to greedy bankers for the promise of freedom in their last 16 years - when by 2040 they may have no food, no clean water and no air to breathe. Like with any accelerated transformation … there needs to be a collaboration amongst market participants and a topdown strategic development that meets up with a shortterm tactical solution. Since 2013, like you, I have supported the Transparency Taskforce. I have also tried to help the people who lose. I’ve been using the ‘trusted advice model’ independent of the banks to free the public from the grip of greedy bankers and the mundane treadmill of work existence they are shackled to by austerity. I’ve been planning the client before the money. No longer on a one-to-one basis.

Terrifying! And, with it being two-decades before principle-before-profit millennials take control of our boards … what must you do. Here’s what you have done already … You joined the Transparency Taskforce. You participated in the teams. You are doing what you can to influence transformative change in the industry and bring about its earliest reformation, before society crosses the point of no ecological return. That change is happening at a

Now, on a one-to-many basis with my book written for them, Your Money or Your Life: Unmask the highway robbers and enjoy wealth in every area of your life … and my events Born to Be: The change you wish to see in the world.

bring about accelerated market transformation. Take platforms. In September 2003, my team ran an industry survey. 8 out of 10 financial advisers had never heard of platforms. In October 2003, we ran the same survey. 8 out of 10 not only said they had heard of them, they said they would use them as part of their customer proposition. And, they did. The life and pension industry changed overnight. Let’s change the financial services industry overnight. If you lead, it doesn’t matter that other market participants are carried on your shirt tail. You are the leader. You create a market, much in the same way as my team did with platforms and later retail-multi-asset funds. Useful Links: Academy of Life Planning: www.academyoflifeplanning. com Your Money or Your Life ISBN: 978-1907282775, Amazon: Twitter Handle: @WharfWizard

In-group bias favouring profit-before-principles damages your business, people and planet. Identify the win-win people in your organisation. Better reward principles in your culture. Collaborate with other market participants to

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by Reverend Paul Nicholson | Founder | Taxpayers Ag

From 1 April 2019, Haringey Council stopped collecti the borough’s poorest families and reduced the tax o shredded benefits from the jobcentres. The new polic the same circumstances in April 2020. The lack of transparency by magistrates, Haringey council and Grant Thornton, their external auditors, made campaigning that for result for the poorest council tax payers hard to achieve and very expensive. UNFINISHED BUSINESS Exactly to whom is the external auditor of a local authority accountable? The public who pay them or the councils who hire them and hand over the cash? Local Government Finance Act 2012 abolished the council-tax benefit. The burden of taxing poor households was thereafter shifted to local government. The benefit was given a new name: the council-tax reduction scheme. The central government grant was cut by 10%, and 277 out of 326 councils now ask the poorest benefit claimants to make up the shortfall in government grant from their benefit income which will have been shredded by £30 billion in 2020. That is grossly unfair. The current adult Jobseek-


ers’ Allowance of £73.10 a week equates to Universal Credit of £317 a month. This has to fund 20% to 30% of a council-tax bill as well as cover more rent than before because of the additional cuts to housing benefit – and that is the case even when a claimant has had their income stopped altogether, normally for up to three months, by a jobcentre benefit sanction. If a council-tax bill is not paid, a council will – after receiving a liability order from the magistrates plus costs – send in the bailiffs. Bailiffs charge £75 for administrative costs, £235 for each visit made to a debtor’s home and £110 if they are required to collect belongings to sell by auction. THE UNLAWFUL CONSULTATION The first step in our campaign to persuade Haringey Council not to tax its poorest residents was to challenge the process by which it took the decision to do so. Michelle Moseley, a brave single mother on a low income, applied for legal aid.

Ian Wise QC, together with Alex Rook of Irwin Mitchell, saw the case through to a win in the Supreme Court. That judgment, was the court’s first case about consultation. The five judges affirmed that the Sedley Principles in Moseley v Haringey – one of which is ‘consult before deciding’ – would apply to all future consultations by local or national government. In failing to consult before deciding, Haringey had been unlawful. Nonetheless, the council was not asked by the supreme court to consult again, so the taxing of the poorest began again. REFUSAL TO PUBLISH BREAKDOWN OF COURT COSTS From April 2013, I refused to pay my council tax. I was inevitably summoned to Tottenham Magistrates Court. Haringey Council’s court costs, which are added to the arrears of the poorest citizens of

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gainst Poverty

ing council tax from 3,000 of of 3,000 more families claiming cy will extend to single adults in

which I was not one, were £125. I asked the magistrate and the council for a breakdown of those costs, which they refused. I therefore took them both to the High Court, with the pro bono help of Helen Mountfield QC and Eloise le Santo of Matrix Chambers. Unsurprisingly, the presiding judge, The Hon Mrs Justice Andrews OBE, ordered them to show me the breakdown. AUDITOR REQUIRES COUNCIL TO REDUCE COSTS The further I went into Haringey’s court costs, the more it became clear that they were seen as a revenue earner, despite the regulations that

require that they pertain to the actual costs of taking a case to court. Haringey was the only council I could find unlawfully charging £125 for the summons but no extra for 20,000 lability orders a year. An objection to Haringey’s 2013/14 accounts raised with Grant Thornton, their external auditor, showed this to be true. He made Haringey reduce the £125 and split it into £102 for the summons and £115 for the liability order. The council had been overcharging 20,000 residents it has taken to court every year since 2010. I took the view that warranted a report in the public interest. AUDITOR REFUSES TO

Paul Nicolson was ordained in the Church of England as a Minister in Secular Employment in 1968. After which he gained a Diploma in Personel Managenent and then earned his keep working in industrial relations until 1982. From 1979- 1982 he was Independent District Councillor for the Kimpton Ward in the North Herts District Council. From 1982 - 1999 he was group Vicar of the Hambleden Valley Group of Churches in Buckinghamshire, where he allowed the filming of the Vicar of Dibley. In response to the Poll Tax he founded the Zacchaeus 2000 Trust on 1997 to support benefit claimants unable to pay their rent, council tax and other debts. The trust now supports about 1200 people a year who accumulate around 2000 debts. In 2012 he founded Taxpayers Against Poverty, campaigning with and for the poorest people based in Tottenham, which now has 22,200 followers on Facebook. He received the Best Non Academic Award 2015 from the Social Policy Association and is a member of the Advisory Council of the Institute of Brain Chemistry and Human Nutrition (http:// uk/).

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PUBLISH REPORT IN THE PUBLIC INTEREST However transparency was very far from the company’s thoughts. I only learnt that the council had agreed with the magistrates, at an unannounced public hearing, that there should be a reduction and splitting of the costs when I was helping someone in council-tax arrears and saw the reduced cost recorded on her court summons. Grant Thornton and Haringey Council made my point by teaming up against this member of the public in the High Court. Lord Justice Hamblen agreed with them, handing down £50,000 costs against me. I turned the costs into an Individual Voluntary Arrangement to avoid bankruptcy. My payment


of a proportion of the costs comes to an end in November of this year. INSTITUTE OF CHARTEED ACCOUNTANTS IN ENGLAND AND WALES “A FIG LEAF” AND “NEEDS TO BE REMOVED” The Audit Commission was a statutory corporation. They appointed auditors to a range of local public bodies in England, set the standards for auditors and oversaw their work. It was abolished in 2015, its functions being transferred to the voluntary, not-for-profit or private sector. The Institute of Chartered Accountants in England and Wales (ICAEW) has a Royal Charter, awarded by Queen Victoria in 1890. It is responsible for the standards of

accountants and has a code of ethics. It, too, was not impressed with my thoughts about auditors being responsible to the public. I kept Prem Sikka, Professor of Accounting at the University of Sheffield, informed. He wrote of the way they handled my complaint: ‘It is rare for any complaint against ICAEW members to succeed and there is no way of knowing how the personnel selected by it filter or weigh the evidence. It does not owe a “duty of care” to the public. It is a law unto itself. It has a reviewer of complaints and he is selected and paid by the ICAEW. Its code of ethics is just a fig leaf. ICAEW’s regulatory status needs to be removed and it should be replaced by robust and independent bodies.’

The Transparency Times | | June 2019 | Edition #38 the collaborative, campaigning community dedicated to driving up the levels of transparency in financial services, right around the world. the official publication of the Transparency Task Force. It is a great opportunity for our community to share news and views, insights and ideas, right around the world. how we bring people togethor to discuss and debate the key issues and to listen to thought leaders on the vital topic of transparency in financial services. awarded to one individual/organisation at each of our Transparency Symposia, in recognition of the contribution they are making to encourage greater transparency.

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Sital Cheema BSc(Hons), MLitt, MCISI, ACIB | Sustainability Inves

I was asked to share my views on the ongoing active post the Transparency Task Force Symposium I spok Passive – seeing the whole picture; and what does th agement look like?” This note is also the second of a series of articles highlighting the importance of fully incorporating ESG and climate-related risks into the investment process. Please see: times__35_march_2019?e=0 I believe: • Active is superior to passive Fundamental active management is superior to core beta passive management – humans not robots should take the lead in formulating our investment decisions. In today’s world the availability of substantial global information flow, requires quanti-


tative tools to assimilate current data points on 1000s of individual stocks, model past historical performance, risk and correlation trends and from all of this, derive forward looking expected returns on each stock, sector, factor, country, region and by asset class. Machines however need to be continuously monitored for inaccuracies, technical faults, cumulative biases and updated to reflect current circumstances changes in regulation, innovative thinking and goals.

Humans are required for fundamental qualitative assessments of this output for example interpreting the effect of global politics and news flow across counties. Furthermore, skilled fund managers working within a robust, disciplined investment process can potentially deliver future outperformance by assessing the quality of management, corporate philosophy, strategies and risk control policies. Humans alone as mentioned above, are not the answer. Behavioural finance highlights the problem of biases such as herding, group thinking, the disposition effect, endowment effect, lottery effect and confirmation bias. A deep understanding of psychology can turn these negatives into a positive by challenging our natural tendencies “playing Devil’s advocate” adapting decision-making structures and creating opportunities to enhance

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stment Consultant | Jaanu Consulting

versus passive debate ke at recently. “Active/ he future of asset man-

investment returns. There is a spectrum of investment styles available from human to machine: Active fundamental to active quant to passive smart beta to passive core beta. The final solution will depend on the client’s specific goals and circumstances, diversification requirements, risk-adjusted returns, liquidity constraints, ethical beliefs, costs, governance structure and implementation skillset. At the end of the day, I believe the solution entails a rigorous analysis to develop a holistic, practical and innovative approach to Total Portfolio Management utilising active and where appropriate passive structures. • Total Portfolio Management (TPM)

Sital has15 years of investment experience across a broad range of disciplines including ESG and Climate Change Specialist, Chair of Global Thought Leadership Forum, institutional DB and DC business development, building strong investment consultant / client relationships as well as researching fund managers and monitoring their ongoing performance via due diligence. Sital is responsible for publications, research and thought leadership, trustee training and advising institutional clients on how to genuinely integrate ESG into their overall investment strategy and underlying portfolios. She speaks at conferences, sits on discussion panels and drives regulation forward through government consultation and draft reviews of new legislation. In March 2019, she was appointed Steering Group Member to provide technical expertise on the BSI’s Sustainability Investment Management Standards Project to develop PAS 7341. Sital is an advocate of enhanced transparency of both physical and transition risks associated with climate change. Her ambition is to encourage a collaborative standardised approach leveraging the existing TCFD framework, Cambridge Impact Framework, ClimateWise Physical and Transition Risk Frameworks and SASB’s model from the stock level upwards. Member of the Sustainable Finance Network.

A Total Portfolio Management approach ensures investment professionals are given the Edition #38 | June 2019 | | The Transparency Times


opportunity to earn their fees and make the best use of their specialist skillset. At the same time asset owners, Trustees and DC members now have the time to focus on understanding current strategic issues such as climate- related risks/opportunities and the importance of embedding ESG factors into the investment process. Devoting time to education and training will help them formulate, I believe, sensible Responsible Investment strategic objectives. The ultimate goal should be “retiring with dignity in a world WORTH retiring into; consistent with promoting economic prosperity and social progress. A planet where we see our children thrive not strive to subsist on depleting resources within an environment of economic and social unrest”. TPM solutions will vary from client to client depending on objectives, size, liquidity constraints, fee constraints and governance. For DC members a discretionary multi-asset fund may be appropriate. For DB pooled and segregated pension clients Fiduciary Management and Outsourced CIO solutions may be appropriate. All investment styles from human active fundamental, active quantitative, passive smart beta (accessing previously expensive active factor strategies such as value, size, momentum, high quality and low volatility inexpensively via indexing or through ultra-low cost ETFs further removing


CGT and annual expenses via exchange trading) to robot core beta strategies should be assessed. In some cases, smart beta strategies increase diversification, lower costs and provide factor overlay completion portfolios to ensure that where active risks are taken, they are intended, stock specific and not simply residual country/sector allocations. Such allocations can for a £10bn segregated portfolio with liquidity issues, avoid over diversification in active managers resulting in very expensive closet tracking with a low probability of achieving its target active return. A Total Portfolio Solution will have a greater chance of succeeding if the investment professionals are given the opportunity to add value at all levels Strategic Asset Allocation (SAA), Tactical Asset Allocation (TAA) an uncorrelated additional source of alpha and Dynamic Asset Allocation (DAA) making use of a specialist implementation skillset. Overall a TPM must consider all investment styles from active to passive, asset classes (for example active for Emerging Markets and Credit), factor analysis (liquidity constraints and efficient portfolio overlay), available vehicles (ETFs versus mutual funds depending upon cost constraints) and implementation strategies (to reduce

volatility, risks and costs). Whether active or passive strategies are chosen within the TPM approach, I firmly believe: • Implementation matters • ESG and climate-related risks need to be fully embedded in the investment process including asset stewardship • Transparent standardised

disclosure of non-financials is required in a single financially material impact framework……my vision is this should become Business as Usual (BAU)………and I can move onto the next investment problem! • Implementation matters in BOTH active and passive A relentless focus on effective trading, research-based analysis of trading strategies, an insightful understanding of the cost and turnover reduc-

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tion opportunities that exist is essential irrespective of the investment style utilised – active fundamental, active quantitative, smart beta or core beta.

trading strategies.

The TPM approach should employ a specialist implementation manager with the following skillset:

• ESG and climate change factors including asset stewardship should be fully embedded within all active and passive mandates

• The ability to achieve a trading price that appropriately reflects the market price

without paying any premium for liquidity due to market-onclose trades, trading of index changes (additions, deletions, corporate actions) and monthend investing. • Reinvesting income to avoid paying a premium for liquidity in order to achieve a more “natural” price. • Consider trade timing for example pre or post index rebalances. • Seek low cost trading or lower volatility opportunities through implementing futures

• Use internal or external crossing networks to increase efficiency and reduce costs.

Asset Stewardship through strong corporate governance engagement, together with issues-focussed and forward thinking voting on shareholder proposals is an important mechanism through which both active and passive managers can take a proactive stance on climate change and other ESG issues for the longterm benefit of their investors. Index funds hold shares for the long-term and therefore have the mandate and reputation of delivering successful results from active engagement with companies by influencing boards with the aim of ensuring that they effectively address issues of waste, pollution, water resource depletion and climate change (Environment) gender diversity, employee inequality, working conditions, human rights (Social), board diversity, ethics and executive pay (Governance). Active fund managers will prioritise private engagement with those companies that will have a material financial impact on their performance due to an ESG issue and / or they have a solution to the issue.

Unlike index managers, they do however have the choice to sell an asset they expect to underperform due to ESG risks. I strongly believe those companies which have the foresight to focus on ESG factors will be the leaders in their industries, the forwards thinkers and those most likely to anticipate, mitigate and adapt to climate-related and other ESG risks and opportunities in the future. The active fund managers who are willing to fully integrate ESG into their investment process (rather than just pay lip service to this on their website) will outperform their peers by investing in long term sustainable companies. Asset owners, trustees and DC members who demand ESG incorporation from their fund managers will be ahead of the curve…… paving the way to economic prosperity and social progress - a better future for our children and for us, a world WORTH retiring into. My vision is that ESG integration and the disclosure of such non-financials is shared transparently in a single standardised financially material format. ESG risk analysis should like financial analysis of balance sheets, EPS, DPS, cashflow become BAU. • Standardised financial disclosure of climate-related and other ESG factors in both active and passive

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mandates is essential The G, governance of ESG, is these days mainstream and has become BAU. 20 years ago, using the G-word was a bad thing. It was over time (“forcefully!”) incorporated into fund manager presentations, branded on websites and paid lip service to. Eventually it gained traction and the ability to process, measure and standardize are now here…… proxy voting companies, shareholder collaboration and activism is in full swing……to the benefit of end investors. Work is still needed on the E & S factors….Responsible Investment integration and transparent financial disclo-


sure of non-financial risks is still required. In particular at present, I believe, that the regulators should require mandatory disclosure of climate change-related risks. This should be achieved via the existing already widely accepted Task Force on Climate-related Financial Disclosures (TCFD) framework. A collaborative standardised approach should be established by using the Cambridge Impact Framework launched in January 2019 and the Sustainability Accounting Standard Board’s (SASB)’s model for measuring climate risk from the stock level upwards. Using the new Cambridge

Impact Framework as shown in the graphic below would increase transparency and disclosure at the portfolio level with respect to quantifying the impacts of environmental and social factors as mapped to the SDGs. The Investment Leaders Group (ILG) shares a common vision of the future of impact reporting in which all funds will be assessed using a common impact standard, such that financial consumers can make informed choices about how and where to invest and the framework below is a step in the right direction.

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The TCFD has recommended inclusion of physical risk disclosures in an organisation’s annual findings. In February 2019, ClimateWise launched its Physical Risk Framework - understanding the impacts of climate change on real estate lending and investment portfolios. Lenders and investors can use catastrophe modelling tools and associated metrics, refined by the insurance industry over decades to better assess, manage, report and reduce their exposure to physical risks, particularly those from extreme weather events – see Figure 1 below:

The ClimateWise Transition Risk Framework - managing the impacts of the low carbon transition on infrastructure investments - launched in February 2019 should be incorporated within the existing TCFD framework. It is designed to help investors: • assess the breadth of asset types exposed to transition risk and opportunity across an investor’s portfolio (across different sub-sectors, regions and time frames) • define the potential financial impact from the low carbon transition down to an asset level • incorporate transition impacts into their asset financial models.

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In addition, the Transition Risk Framework enables scenario analysis based on different expected climate transition pathways which is helpful.

Finally, regulators should move towards requiring trustees to disclose which scenario their overall portfolio currently fits into, any aims they have to reduce their portfolio impact (from say a 4 degree to a 2 and then 1.5 degree path) and the timeframe under consideration. All such disclosures should improve transparency within the industry and move the climate change mitigation debate forward. To summarise post the panel and debate on the active versus passive fund management debate: I believe in humans (active fundamental) more than robots (passive core beta) although behavioural biases should be kept in check by


quantitative analysis. Client-specific Total Portfolio Management is the best solution. Fund managers and investment specialists should take responsibility for all investment decisions at the SAA, TAA, DAA, factor overlay and stock level. All active and passive mandates should employ efficient cost- effective implementation services.

investing” - the move towards SUSTAINABLE INVESTING. How is this better than “merely” integration of ESG? https://www.transparencytaskforce. org/previous-events/london-20thmarch-2019/ Active/Passive – seeing the whole picture; and what does the future of asset management look like?”

Climate-related and other ESG risks and opportunities should be fully embedded into all active and passive mandates. Both physical and transition risks associated with climate change should be disclosed in a single financially material impact framework. My next article will focus on the “5th wave of responsible

The Transparency Times | | June 2019 | Edition #38

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