Edition 15 J u l y 2 017
A lang cat production for The Transparency Task Force
The Transparency Task Force introduces two new and important Task Force Teams … 7 How XTP is supporting institutional investors in safeguarding their interests … 4
Why pension schemes should be paying more attention to climate risk … 22
Transparency and the Global Financial Crisis, ten years on … 13
New Transparency Task Force White Paper tackles retail banking … 25
How the ‘value for money test’ provides an opportunity to lead the market … 18
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3 Hello from the Editor 4 Introducing XTP: implementation efficiency for institutional investors 6 Transparency Statements 7 Introducing Teams PISCES and PAM 12 The Transparency Task Force Teams 13 Conflicts before complexity: a GFC retrospective on transparency, 10 years on from Lehman Brothers 18 The value for money test â€“ a chance to stand out from the crowd 19 The Directory of Pro-Transparency Organisations 22 Shining a light on climate risk 25 The Transparency Task Force moves to strengthen consumer confidence by improving transparency and clarity for current accounts
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Hello from the Editor Here’s my report on recent happenings, events, activities and news regarding the Transparency Task Force… Thursday 22 June A First State Investments event at the Australian High Commission on the Strand (Gringotts Bank for the Harry Potter fans). David Pitt-Watson, Executive Fellow at the London Business School and TTF Ambassador, spoke on ‘The Purpose of the Finance Industry’ and was as inspiring as ever. There were a number of other highly engaging speakers and evidence of impressive thought leadership on the stewardship of capital.
Monday 26 June Alex Letts of U, successfully led a major TTF event at the House of Commons, which you can read about on page 25.
Wednesday 28 June The FCA’s Asset Management Market Study Final Report was published and it’s clear to me (especially after reading the appendices) that this is going to be the ‘giant leap forward’ the sector needs. Well done FCA! Spoke about the importance of transparency at Professional Pensions’ Pensions & Benefits UK event. Later, the BBC’s Andrew Neil gave a talk. It was the best socio/ political/economic world analysis I’ve ever heard.
Friday 30 June Marlon Sahetapy, Principal at Aon Hewitt’s Global Investment Practice, confirmed that they’ll will be hosting a Transparency Symposium in Amsterdam, on 28 October. Thank you very much Aon Hewitt!
Tuesday 4 July Conference calls for half of the TTF Teams. Many thanks to everybody
that participated and all the Team Leaders involved.
Wednesday 5 July A packed Transparency Symposium, very kindly hosted by IG Group. The highlight was the talk by Becky Young and Robin Finer, senior Executives at the FCA’s Competition Department, about the Market Study Final Report. They handled what may have been the longest Q&A session ever with aplomb. Mike Barrett, Consulting Director at the lang cat was the very deserving winner of The Transparency Trophy. The lang cat ‘tell it as it is’ and I really rate that challenging mindset. We also launched Team PAM, which you can read about on page 7. Huge thanks to all attendees, speakers and sponsors. Rachel Wheeler, Partner at Mercer confirmed they will host a Transparency Symposium in Boston on 28 September, our first overseas event. Thank you very much Mercer!
Thursday 6 July Conference calls for the rest of the TTF Teams including the inaugural call for Team PAM.
Friday 7 July UBS hosted an event for Volans about its Project Breakthrough initiative. Strong content from the likes of Steve Waygood, Chief Responsible Investment Officer at Aviva, and Grant Thornton’s CEO, Sacha Romanovitch. All ultrarelevant to Team PISCES.
Monday 10 July Attended a planning meeting for the ‘10 years after the Crash’ events we are participating in. Henry
Andy Agathangelou Founding Chair, Transparency Task Force
Leveson-Gower, Chief Executive at Promoting Economic Pluralism, was at the helm.
Tuesday 11 July Paul Barnes, Director, Business Analysis, EMEA at Morningstar let me know that Morningstar will host the Transparency Symposium on 13 September. Thank you very much Morningstar! Important TTF Press Release issued about the TTF’s White Paper responding to the very serious shortcomings of the new Global FX Code. The Paper was masterminded by Xavier Porterfield CFA, Head of Research at Newchange FX and a key member of TTF’s Foreign Exchange Team. You can download the Paper through this link, just scroll towards the bottom of the page.
Thursday 13 July Attended the Pension Regulator’s TPR Future stakeholder conference. Great response from CEO Lesley Titcomb, to a question I put about pension scammers. I referenced the great campaigning being done on this subject by Angie Brooks and Henry Tapper and Lesley explained ‘Project Bloom’ and the ‘Scorpion’ campaign. So, it’s been a very busy and very productive time, with no sign of things slowing up. I am hugely encouraged by the many supportive comments the TTF is getting about what we’re all trying to do, particularly as we have no resource which makes everything incredibly difficult. If anybody knows anybody that might be able to help in any way, please let me know.
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Introducing XTP: implementation efficiency for institutional investors by DR. ACHIM LUTZ | FOUNDING PARTNER XTP AG
In a challenging market environment with historically low returns and interest rates, institutional investors face increasing challenges to meet their liabilities, stakeholders’ expectations and fiduciary responsibilities. Therefore, the highest standards in transparency, proven execution efficiency and constant optimisation and reduction of costs have become a top priority for institutional investors. As Investments & Pensions Europe stated in January 20171: ‘Controlling asset management fees and costs has become the number one priority in institutional investment in recent years. Today, pension funds cannot make fundamental investment decisions without considering the costs associated with implementing a given strategy.’ Furthermore, ongoing regulation demands that investors safeguard the interests of the beneficiaries and work to achieve full transparency and better control regarding investment costs. A recent report by Oliver Wyman2 showed that – for the first time – fee levels have become a more important driver for fund flows than historical fund performance. As past performance is only a weak indicator for future performance, yet costs are certain, there is some logic in this shift.
Who is XTP? XTP’s mission is to support institutional investors in safeguarding their interests, i.e. extending fiduciary responsibility into all delegated mandates and processes. In a first step, XTP combines bottomup forensic analysis and systemic ‘big data’ scrutiny across all investments and asset classes to create full transparency regarding costs, process efficiency, operational risks and net/gross return differences. In a second step, after identifying inefficiencies and cost leaks, XTP implements optimisation measures by: • Optimising and renegotiating costs and structures. • Increasing efficiency of execution and transaction processes. • Closing performance leaks. • Reducing operational risks. Actively optimising processes and reducing costs enables institutional investors to increase the net return of their investment portfolio.
1. Investments & Pensions Europe,’Special Report: Fees & Costs – Light in the fog?’ January 2017: https://www.ipe.com/reports/special-reports/fees-and-costs/ special-report-fees-and-costs-light-in-the-fog/10016967.article 2. Morgan Stanley & Oliver Wyman, Bluepaper ‘Wholesale Banks & Asset Managers: The World Turned Upside Down’ March 2017
Unique approach: integrated view and analysis of the entire value chain In todayâ€™s market, different providers can look at specific cost elements as part of their service offering; from brokers offering transaction cost analysis, through investment consultants, to private equity fund administrators offering to verify private equity fees. Typically, topics around cost and efficiency are a by-product alongside the main service offering, be it brokerage, investment advice, manager selection or reporting. However, in the experience of XTP, a holistic view of all cost
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and process elements is the most beneficial approach. An integral analysis of the entire value chain across all asset classes allows the identification of optimisation potential and ultimately helps to narrow the gross-/net return leak.
returns for a given portfolio by 5 to 50 basis points p.a., without changes to asset allocation or manager mix. As investment parameters do not change, this represents a risk-free additional return.
A meticulous and systematic bottom-up analysis of up to 180 cost and process elements uncovers the total cost of ownership. Instead of just providing a report potentially identifying problems, XTP offers full hands-on implementation of all findings, making sure once identified that optimisation potential is actually realised.
Cost and process efficiency is XTPâ€™s only focus and specialisation. Additionally, interests of the clients and XTP are fully aligned as XTP offers to take the cost risk of such projects against a participation in realised savings following successful implementation of optimisation measures.
Typically, XTP is able to increase net
XTP Background and History XTP has a track record of more than 15 years. In 2001, Professor Lutz Johanning conducted the first academic peer-group study regarding costs of institutional asset management as an empirical capital markets research project. Three years later, in 2004, XTP was set up. Today, XTP is active in Germany, Switzerland, the United Kingdom, the Netherlands, Scandinavia and the United States. Dr. Achim Lutz is a founding partner of XTP AG. His responsibilities include analysis of cost structures in real estate and other real assets as well as any legal and investment compliance issues. He is responsible for relationships with clients as well as implementation and negotiations on behalf of clients. Before XTP, Achim was managing director of a German private equity real estate asset manager, where he focused on structuring and fundraising of value-added/opportunistic residential real estate funds for German Family Offices. Prior to that, Achim worked for a private equity group, focusing on restructuring and turnaround situations, incubating new turnaround funds and building up a fund of funds focusing on this sector. Achim started his career in the Capital Markets Team with New York-based international law firm Shearman & Sterling, where he worked in the Frankfurt, London and San Francisco offices. He studied law at Justus-Liebig-University in Giessen, Germany where he also wrote his dissertation to receive a Doctor in Law degree (Dr. jur) and spent a year at the Law School of the University of Warwick in the United Kingdom. Achim has 15 years of capital markets investment experience. Besides German, Achim speaks fluent English and French on a conversational level.
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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 thought leaders showing their support.
Chief Customer Officer, NEST
‘I believe there ought to be higher levels of transparency in financial services because the industry and public need and want it post-Brexit.’
‘I believe there ought to be higher levels of transparency in financial services because it is key. NEST places a high value on transparency and we publish our costs and charges on our website. We believe the most important purpose of clarity and transparency around costs is for scheme trustees and governance bodies to be able to understand the costs they’re taking on and ensure they’re getting the best value for money for members. This due diligence must be done and be seen to be done by those who’re acting in members’ interests. It mustn’t fall to members to have to interrogate large amounts of complex data, which is unlikely to lead to improved
Robert Davies Director, Smart-Beta Investments Ltd
‘I believe there ought to be higher levels of transparency in financial services because it helps investors make better decisions.’
decision making and outcomes.’
Madison Marriage Asset Management Correspondent, Financial Times
‘I believe there ought to be higher levels of transparency in financial services because people need to be able to trust those responsible for managing their money.’
‘I believe there ought to be higher levels of transparency in financial services because the economy should work
Head of Corporate Development, PensionBee
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and PAM The Transparency Task Force marches full steam ahead with the launch of two new and very important communities: Team PISCES and Team PAM.
Team PISCES This new community was launched at our Transparency Symposium held on 17 May, at the Pension Insurance Corporation, London. In essence Team PISCES is about the world’s capital markets becoming a ‘force for good’.
P I S C E S
Purpose Impact Investing
Sustainability CSR (Corporate Social Responsibility) ESG (Environmental, Social and Governance) Socially Responsible Investing
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So, the idea is that members of Team PISCES will work together to encourage the world’s capital markets to become a ‘force for good’ by focusing attention on the importance of these 6 areas. I’m over the moon with the interest shown in the initiative – at the time of writing the list of members looks like this:
Chief Executive Officer
UK Municipal Bonds Agency Plc
Director, Strategic Communications
Insight Financial Research
Head of Equities & Impact Investing
Hermes Investment Management
Transparency Task Force
Associate Director, Stewardship & Responsible Investment
Personal Social Services Research Unit
London School of Economics
Head of Proposition
Future Earth Ltd
Head of Research
Social Stock Exchange
Former MD, Coutts
Head of Legal
Spence and Partners
Cranfield School of Management
Professor of Strategy and Innovation
Ashridge Business School
Manager | Research & Special Projects
Jane Marshall Consulting
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UK National Advisory Board on Impact Investing
Consulting Chief Investment Officer/UK Lead
New Fund Order Consulting/ Association of Professional Fund Investors
Head of Corporate Affairs
Pension Insurance Corporation
Actuary Investment Consultant
Chief Executive Officer
sriServices and Fund EcoMarket
Member Nominated Trustee
Church of England Pensions Board
Interim Chief Risk Officer
Department for Work & Pensions
Manager, Responsible Investment
The Martin School, Oxford
Nico Aspinall Consulting
Head of Investment Strategy
Kempen Capital Management
Senior Development Manager
Pensions Technical Officer
project Breakthrough Fellow
Volans Ventures Ltd
Director, Head of Research
Asset Intelligence Research
Lead Web Developer
Pinsent Masons LLP
Workplace Pensions Direct
Consultant, Standards Solutions
Chief Executive/ Chair
Social Stock Exchange / OECD Working Group on Transparency for Social Impact and Ethical Investments
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The May 2017 Transparency Symposium
Team PISCES has already had two conference calls and we are now busy formulating campaign objectives. If you like the idea of the world’s capital markets becoming a ‘force for good’ please pop me an email: firstname.lastname@example.org as more collaboratively-minded members are wanted.
Member firms will already be completely comfortable with high levels of transparency on costs and charges so they are well-suited to operating in the ‘Post Final Report World’. They will also possess one or more of these attractive characteristics:
• Being orientated to the idea of the capital markets being a ‘force for good’.
P A M
• Enlightened leadership.
• Striving to deliver high value for money for their clients.
• An evidence-based approach. • Advanced use of technology. • An inclusive ownership structure, such as mutuality.
• Having a fee structure that aligns with clients’ interests. • Being focused on the longer term.
Team PAM was launched at our Transparency Symposium held at IG Group in London on 5 July. The purpose of this new community is to facilitate collaboration between asset managers that have a more enlightened and progressive approach. The initiative has been triggered by the publication of the Financial Conduct Authority’s (FCA’s) Asset Management Market Study Final Report, which was presented by the FCA’s Becky Young and Robin Finer (senior executives within the regulator’s Competition Department) at the 5 July symposium.
• A determination to serve their clients’ best interests. Team PAM has already had its inaugural conference call and it has become very obvious very quickly that there is much to be gained through collaboration. The firms being attracted to this initiative do not fear each other or the regulator; they are confident in the inherent strength of their offerings and are already working to high ethical standards. At the time of writing the initiative is just a few days old but already members include Sparrows Capital, IG Group, Vontobel Asset Management, eVestor and Hermes Investment Management, so take-up has been terrific. As with all our communities it will be down to Founder Members to agree objectives and the best strategies to achieve them. Any firm that has a pro-transparency and pro-client way of working is
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The July 2017 Transparency Symposium
welcome to get involved as Founder Members too, so long as they join ahead of our next conference call on Thursday 3 August. There is no joining or membership fee; members just need to commit to doing what they can, when they can, however they can, to work with each other to help improve the way the sector as a whole operates (whilst of course not breaching any competition law rules). Team PAM is all about displaying values-based leadership for the greater good, and understanding how ‘enlightened selfinterest’ can work so positively in the real world. Naturally, membership is open to active and passive managers because being tribalistic about such issues would just get in the way of progress – the supply side is far too complex and nuanced to be looked at in overly simplistic, binary terms. For example, I really like the way that some active managers have fee structures that align to clients’ interests and others that are deadly serious about doing stewardship properly. What matters more than anything is the mindset of the firm’s leadership; whether the client is seen as somebody to be served; or somebody to be exploited through information asymmetries. My aspiration for Team PAM is that it helps to accelerate the culture change that is now taking place in the industry; just as the FCA’s Market Study most certainly will. Culture is key. In my view, corrosive cultures have been the root cause of much of the self-inflicted reputational damage the sector has suffered in recent years. You’ve only got to think about how so few asset managers signed up to Daniel Godfrey’s Investment Principles when he was leading the Investment Association (and his subsequent forced departure) to realise there are deep-rooted culture issues that need exorcising. One can’t help wonder whether the FCA’s Market Study would have been needed at all had Daniel’s visionary leadership not been undermined by some asset manager Chief Executives that either fail to see the bigger picture completely or more likely turn a Nelsonian eye to it.
In contrast, members of Team PAM will be challenging themselves to consistently display behaviour that will help to rebuild trust in the sector as a whole. All experienced, right-minded asset management professionals ought to want to do that. The new community will be made up of thought leaders who don’t run away from the opportunity to be seen to commit to serving clients’ best interests. As such, these progressive asset managers will be delivering what the market wants. Now that the FCA is making the changes necessary to allow the ‘invisible hand’ of a competitive market to finally work its magic, we have good reason to expect more enlightened and progressive firms to flourish into the future and to take market share. Transparency is a commercial virtue; as is committing to take care of clients’ best interests. I may be naïve, but if we assume the FCA regulates for a competitive market moving forward, the only conclusion I come to is that ‘doing the right thing’ makes complete sense – both culturally and commercially. If you’re an asset manager and agree then please do your bit to be ‘part of the solution’ by getting in touch: andy.agathangelou@ transparencytaskforce.org. If you’re an asset manager and you don’t agree I suggest you might want to prepare your explanation to your shareholders about why you think it makes sense being out of touch with market sentiment and thereby inviting your market share to shrink.
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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.
Challenging the opacity.
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
Progressive asset managers working together.
If you want to make your opinion count by joining our 150+ strong group of volunteer team members, contact email@example.com 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
Director of Manager Research Services EMEA Morningstar Europe Ltd
Association of Professional Fund Investors
Workplace Pensions Direct
CEO (DC) UK
The People’s Trust
Catherine Howarth Chief Executive
Head of Research
London Business School
The Evidence-Based Investor
Lecturer in Strategy and Corporate Governance
Newcastle University Business School
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Conflicts before complexity: a GFC retrospective on transparency, 10 years on from Lehman Brothers BY ANDREW VALLNER | MANAGING DIRECTOR, CPG RESEARCH & ADVISORY
It is a truth universally acknowledged, that complex structured products caused the Global Financial Crisis (GFC). Ratings agencies were compelled to add a (sf) to structured finance ratings, code for ‘don’t take any notice of that – it’s not a real AAA’. Moody’s1 writes: The addition of (sf) to structured finance ratings should eliminate any presumption that such ratings and fundamental ratings at the same letter grade level will behave the same… while continuing: …however, Moody’s aspires to achieve broad expected equivalence in structured finance and fundamental rating performance when measured over a long period of time. The notion that an (sf) rating might not be ‘fundamental’ is itself interesting, and might form the topic for another paper. An RMBS rating will be based on projecting a cumulative default curve for a given pool quality, using through the cycle curves. ‘Fundamental’ [corporate] ratings will use EBITDA multiples (leverage), Interest Cover Ratios (ICR) and other measures which should indeed react quicker to deteriorating fundamentals, primarily earnings. So there are indeed prima facie reasons why (sf) ratings are more smoothed, less cyclical. But it’s probably not what the Australian regulators were thinking about when they came up with this thought bubble…
The Australian Securities and Investments Commission (ASIC) had an even more novel solution to the problem of credit ratings: No-one is allowed to hear them! In Australia it is perfectly legal to listen to the opinions of politicians, bookmakers, clairvoyants and economists – but a credit rating cannot be disclosed to a retail investor2 (in the interests of transparency, of course)! Regulation by the Three Wise Monkeys. Meanwhile, it is perfectly legal to issue hybrid / CoCo securities to retail investors which are nominally senior to equity but can be zeroed if conversion to equity does not happen for just 5 days3.
Criteria for conversion or total loss are much less than transparent – some of the triggers are parametric (e.g. Tier 1 of 51/8%) but others are worded with criteria like ‘if the Australian Prudential Regulation Authority (APRA) considers.’ How long was the NYSE closed by the 9-11 terrorist attack? How long might shares be suspended if auditors issued a qualified audit opinion? Would APRA in talks with a bank about ‘non-viability’ during a run see the stock suspended for a week? But also consider a hypothetical conflict of interest: Could institutional shareholders render conversion ‘not possible’ simply by contesting the nonviability notice and conversion notice in court?
1. https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 2. http://asic.gov.au/regulatory-resources/financial-services/financial-product-disclosure/disclosure-of-credit-ratings-in-australia/ 3. e.g. http://stocknessmonster.com/news-item?S=AMP&E=ASX&N=889341, p11
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An injunction to halt conversion might cost tens of thousands in legal fees – while tens of billions in hybrids are destroyed. Yes, with thousands of loans, it was indeed more difficult to tell when something went wrong in very complex structures. More so when that became potentially millions of loans in a CMO (Collateralised Mortgage Obligation, or CDO (Collateralised Debt Obligation) of RMBS (Residential MortgageBacked Security)). But dismissing the GFC as simply a complex securitisation event ignores three things: • Atrocious performance of the non-prime loan pools before any securitisation occurred, when they were just simple, unlevered loans. • Failure of AAA companies, to the point where this was almost the norm: Lehman Bros; the Icelandic banks Glitnir, Landsbanki and Kaupthing (all upgraded to Aaa Feb-March 2007); monoline insurers and HoldCos XL Capital Assurance / Syncora, Financial Guaranty, FGIC Corp, Ambac Assurance and Ambac Financial; GSEs Fannie Mae and Freddie Mac (triggered CDS (Credit Default Swaps) in their nationalisation); AIG (rescued from bankruptcy by bailout). The Icelandic banks were not brought down by subprime, or the recycling of securitised assets. • Remarkably good performance of CLOs (Collateralised Loan Obligations, (CDOs of speculative-grade loans),
even down to very junior or equity tranches. We propose #AlternativeFacts: Credit performed as expected, unless someone broke the chain of parties wanting the debt to be repaid. Conflict and moral hazard, rather than complexity, determined likelihood of repayment. Investors should most actively seek transparency of conflicts. Sectors that dramatically underperformed: • N INJA lending (‘No Income, No Job or Assets’) had a borrower that didn’t care – in many states loans were non-recourse; a mortgage broker quite possibly committing fraud; and a bank that probably knew the loans were no good – parcelling them into RMBS as quickly as they could get them out the door. Virtually no one in the value chain cared about the debt investor outcomes – and may have been actively hostile. • A bacus 2007-AC1 SCDO (Synthetic Collateralised Debt Obligation): Allegedly, while represented as a ‘managed CDO,’ the components were selected to facilitate Goldman’s client Paulson’s short interest against the specific names! The structurer allegedly wanted the CDO to fail4! • Corporate SCDOs generally: Pre-2008, they were rated primarily on a matrix approach – diversification (sector, country,
region) and individual name ratings were the main inputs. The arranger’s incentive was to assemble the names trading widest for their credit rating (i.e. the lowest market-implied rating). (And don’t forget the incentives inherent in banking regulations – the treatment of AAA paper and speculative-grade loans incentivises securitisation and deters ‘banking.’) The point about SCDOs and implied ratings was interesting long before the crisis exploded; we published a 2006 analysis showing just how sensitive SCDO default probabilities can be. We ran a sample portfolio through the rating agencies’ Monte-Carlo simulators (which were public and quite transparent, as were SCDO portfolios). Not surprisingly, if all assumptions played out exactly as expected, the probability of default was extraordinarily low – commensurate with the ratings they opined. But relatively small changes to the probability of corporate default – either from a sustained, adverse economic environment, OR from anti-selection of names – produced astonishing leverage in the underlying SCDO. Doubling the corporate default rates (say a 2-notch market-implied downgrade) produced a 36-fold increase in implied CDO default probability, or an 8-notch lower implied CDO rating compared to otherwise similar index tranches:
CDO Default Probability
% of Standard
3 , 619%
Default Multiple Expected Portfolio Defaults
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Source: CPG analysis – Direct Securities Report (October 2006), using Standard & Poor’s CDO Evaluator v3.2
Conversely, consider a structured credit fund CPG has followed and (at times, post-crisis) recommended: Tetragon Financial Group (TFG.NA). Originally launched as a CLO Equity fund at the worst possible time (an April 2007 IPO), TFG’s $10 IPO price soon fell to as low as 69c! If even AAA CDO tranches were
collapsing, what hope could there be for the first-loss unrated junk??
Everybody seemed to be on the same side in CLOs. The borrowers are massive corporations, who want to stay solvent. The sponsors want to retain their equity, and indeed often have an incentive to inject more junior capital to protect lenders, avert debt reorganisation and retain their ownership. The CLO manager is usually the CLOE owner and looking to maximise their achieved IRR as well as avoid income lockups from failing overcollateralisation tests.
Managers are directly aligned with investors, or more accurately with their co-investors. This includes at selection of the initial portfolio, which can be an important difference with even managed SCDOs (where they could be appointed to manage the portfolio after initial name selection).
The market was very wrong – not only did first-loss CLOE tranches survive, but they thrived! TFG’s portfolio regained a highwater mark by September 2010, on the way to being up +189% at March 20175.
Corporate credit worked, after a major scare. The underlying indices (e.g. Credit Suisse Leverage Loan Index) regained their highs by mid-2009, and
5. http://www.tetragoninv.com/~/media/Files/T/Tetragon-V2/financial-report/2017/2016-annual-report.pdf, p8
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generally outperformed listed equity, outright – whether invested before or after the Lehman event:
pre-crisis terms, but were reinvesting into new loans at post-crisis spreads.
And as the underlying assets generated investment gains, the leveraged versions did too. Even better, managers found their CLOs had raised leverage at
By all means be wary of complexity in credit, but focus first and foremost on conflicts.
Andrew Vallner, Managing Director, CPG Research & Advisory CPG is an independent investment research firm and asset consultant, founded in 1991, to provide research and advice to wholesale investors such as institutions and multi-family offices. It is part of the Linchpin Capital Group of independent advisory boutiques. Andrew Vallner has worked in investment management, research and consulting since 1994. Originally an actuary with the AMP Society, he managed institutional money for the CUNA Mutual Group and pioneered a multimanager LIC approach as an institutional alpha strategy (outperforming by over 500bp p.a.), and maintains an active interest in LIC research today. At CPG, Andrew was perhaps the first analyst to publicly flag AAA defaults in Australia, before recommending speculative grade loans in late November 2008. His clients have frequently topped national performance surveys, and Andrew has spoken at events in Melbourne, Kuala Lumpur and Xi’an on the topics of credit and alternatives. Head of Research Mohamed Hage is the NSW Chair of the Arab-Australia Chamber of Commerce, recently winning the Premier’s Medal for Economic Participation in the Multicultural Awards. Mohamed has presented at global events in the Middle East, including at the AIM Summit in Abu Dhabi on private equity. The author may well hold (or have held) direct or indirect positions in securities discussed.
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THE LONDON TRANSPARENCY SYMPOSIUM 13 September 2017
Morningstar, 1 Oliver’s Yard, 55 City Road, London EC1Y 1HQ Our thanks go to Paul Barnes, Director, Business Analysis EMEA at Morningstar, who has very kindly agreed to host a Transparency Symposium on 13 September in London. This is a particularly important event, entitled “It must never happen again!” because it’s all about the causes and consequences of the Global Financial Crisis and the role played by a lack of transparency. We have timed the event to be exactly 10 years after the collapse of Northern Rock. Confirmed speakers so far: • Tony Greenham, Director of Economy, Enterprise and Manufacturing, RSA • Professor Andrew Clare, Professor of Asset Management at Cass Business School and former Senior Research Manager in the Monetary Analysis wing of the Bank of England. • Markus Krebsz FRSA, Chartered MSCI, GRCP • Martin White BSc FIA, Board Director, UK Shareholders Association • Leandros Kalisperas MA, Economist and Independent Consultant • Andrew Mills, Expert Financial Analyst and Writer; Founder, Insight Financial Research • David Pitt-Watson, Executive Fellow, London Business School More top speakers are being added.
Click here for our special ‘It must never happen again!” Transparency Symposium, all about The Global Financial Crisis; London, 13th September, 10 years on from the collapse of Northern Rock
THE BOSTON TRANSPARENCY SYMPOSIUM 28 September 2017 Mercer, 99 High Street, Boston, MA 02110 We’re grateful to Rachel Wheeler, Principal at Mercer (based in New York), for offering to host the Transparency Task Force’s first Transparency Symposium outside the UK. Thanks also to Rachel’s colleague David Knox, Senior Partner and Senior Actuary (based in Melbourne) for very kindly introducing us to Rachel. David is a leading figure in our International Best Practice Team and is involved with the development of our Global Transparency Index. Confirmed speakers so far: • Preston McSwain, Managing Partner and Founder of Fiduciary Wealth Partners • Stephen Davis, Associate Director and Senior Fellow, Harvard Law School Programs on Corporate Governance and Institutional Investors • Andrew D. Eschtruth, Associate Director for External Relations, Center for Retirement Research at Boston College • Jon Lukomnik, Executive Director, Investor Responsibility Research Institute More top speakers are being added. Please contact firstname.lastname@example.org if you’re interested in getting involved with the Boston Transparency Symposium as a speaker, delegate, panelist, sponsor or media partner or if you’d like more information.
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the lang cat view Each month the lang cat shares its cat’s eye view of all things transparency-related.
This month, consulting director Mike Barrett considers the opportunities of change.
The value for money test – a chance to stand out from the crowd While the initial reaction to the Financial Conduct Authority’s (FCA’s) Asset Management Market Study Final Report seemed be that the industry had got off lightly, we see things differently. The pace of change may not be rapid (we’re talking months if not years for most of it) but the times are indeed a-changin’ for fund managers, platforms, financial advisers and most importantly, consumers. Of all the proposals outlined in the final report, those around Governance: where fund groups will be compelled to act in the best interest of investors and introduce independent scrutiny feel the most significant. The combination of increasing accountability through the Senior Managers and Certification Regime (SMCR), the new proposed requirement to appoint a minimum of two independent directors to Authorised Fund Manager (AFM) boards, and their new responsibility to conduct an annual ‘value for money test’ packs a real punch. Put simply, asset managers will be required to ensure their customers are treated fairly, and if not, the directors involved will be personally liable. We are especially interested in how the proposed value for money rule1 will be implemented. Value is subjective, but an AFM board (with the required additional independent directors) will be required to assess the following: 1. Economies of scale: in the costs of operating funds and whether break points should be introduced. They must consider whether any savings are being passed on and, if not, explain why not. 2. Fees and charges: whether they are reasonable in relation to the costs incurred, keeping in mind the
quality of service and comparable market rates and products. 3. Share classes: the different options available, whether these offer value for money and, where multiple share classes are available for a given fund, why some investors are in more expensive classes. 4. Quality of services: the experience that investors are, or have been, receiving along with the criteria used. 5. Transparency: this whole process must be ongoing, with a formal documented assessment to be published once a year along with actions the AFM board has taken, or will take. Any poor value for money practices identified must be accompanied by details of the action(s) taken, with a failure to take sufficient steps potentially a contravention of the relevant rules. For any director to sign off on all this feels like a big step, and frankly for some firms significant change will be needed to get to the point where anyone with an ounce of credibility is comfortable putting their name and personal liability on record against such a test. Whilst these proposals are still at consultation stage we have already seen evidence of the more forward thinking firms wanting to bite the bullet and implement the new governance structure as soon as possible. There will almost certainly be a first mover advantage here, not only to recruit the best independent directors, but also to make a statement to your customers, shareholders and employees that you are serious about transparency and responsible governance. As the profile of these changes increases individuals will soon have a choice. Do you want to work for, invest in or invest with firms who are embracing positive change, or those who are fighting it? Asset managers who implement these proposals rapidly and effectively could well find that they stand out positively from their peers, and reap the benefits as a result.
1. FCA CP17/18, section 3.2.4
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 email@example.com for more information.
ACADEMIC INSTITUTIONS Prof. Dr. Heinz-Dietrich Steinmeyer University of Muenster, Germany School of Law, Universitätsstrasse 14-16D-48143 e: firstname.lastname@example.org 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: Steve.email@example.com w: www.workplacepensionsdirect.co.uk 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: Gavin.Perera-Betts@nestcorporation.org.uk w: www.nestpensions.org.uk 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: firstname.lastname@example.org w: www.ferrierpearce.com 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: email@example.com w: www.gsav.io 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: firstname.lastname@example.org w: www.accuratedata.co.uk 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: email@example.com w: www.cardano.com 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: firstname.lastname@example.org w: www.staffordwealth.co.uk 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: email@example.com w: www.barnett-waddingham.co.uk 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: firstname.lastname@example.org w: www.jnmresearch.com 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: email@example.com w: www.clerus.co.uk 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 Oâ€™Grady, Head of Business Development, Hawksmoor Investment Management e: Robin.firstname.lastname@example.org w: www.hawksmoorim.co.uk 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: email@example.com w: www.sevenpillarsinstitute.org 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: firstname.lastname@example.org w: www.pasa-uk.com 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.
SALES & MARKETING
COLOURS CMYK C100 M88 Y0 K0 C0 M0 Y0 K0
COLOURS CMYK C100 M96 Y8 K5
Arno Kitts, Founder & Chief Investment Officer, Perspective Investments C0 M0 Y0 K0
e: Arno.Kitts@PerspectiveInvestments.com w: www.PerspectiveInvestments.com 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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Shining a light on climate risk
BY JULIA DREBLOW | FOUNDER SRISERVICES AND FUND ECOMARKET.CO.UK
It was with great pleasure that I heard Nico Aspinall present at the Transparency Taskforce event in May, for which I thank founder, Andy Agathangelou. Nico spoke eloquently on the subject of climate change and pensions – a subject I believe has been far too low profile for far too long. I am not an actuary, but I don’t think you need to be to understand this issue which is: ‘if pension schemes invest for the longer term, why don’t they pay serious attention to climate risk? …Or at least offer scheme members the option to do so if they wish?’ In the wake of the December 2015 Paris climate conference (COP21), where 195 (or rather 194 now) governments signed up to the objective of keeping global temperature increases ‘well below +2 degrees C’, it is clear that there will be both significant corporate winners and significant corporate losers. Given the magnitude of climate change related risk it seems pretty
clear that those advising pension schemes should now be doing what they can to protect their clients – from both a financial risk management perspective and a moral perspective. Morals and intergenerational equity aside, the economic case for climate action is not new. It was set out in the Stern Review ten years ago. Nor is it niche – particularly following COP21 and the establishment of the Financial Stability Board (FSB) Taskforce on Climate-related Financial Disclosures (TCFD), which I will come back to shortly. It is against this backdrop that I was delighted to hear from Nico Aspinall that The Institute and
Faculty of Actuaries had sent an ‘alert’ to all members – calling on actuaries to consider climate related risk. Their press release starts as follows: IFoA warns on climate change financial risks 12 May 2017 The Institute and Faculty of Actuaries (IFoA) has today (12 May) issued a Risk Alert to raise awareness around the financial risks posed by climate change. We are asking all actuaries, whichever field they are working in, to consider how the implications of climate change affect their work, actions and decision making.
The IFoA alert is intended to draw attention to specific areas of actuarial activity, asking members to think carefully about the consequences of actions they are taking. There is an increasing body of evidence demonstrating that climate change represents a material risk to future economic stability1… The risk alert, of the same date, starts as follows: Risk Alert: Climate related risks Actuaries should ensure that they understand, and are clear in communicating, the extent to which they have taken account of climate-related risks in any relevant decisions, calculations or advice. This Alert is relevant for all members. There is an increasing body of evidence demonstrating that climate-related issues represent a material risk to future economic stability affecting environmental, societal and governance matters. Many clients of actuaries are exposed to this risk2. This alert marks a significant turning point in the ‘should they/ shouldn’t they’ debate around climate change and investment. It spells out the case for considering climate change and explains the risk of not doing so – and in so doing puts an end to the view that climate change is a low priority, niche, ‘non-financial’ consideration. The implication of this warning is significant in that any actuary, pensions specialist or otherwise, who ignores climate risks will now be falling short of the guidance issued by their professional body. In addition to this risk warning the IFoA also issued a separate but related report shining a light on
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‘resources and the environment’ related issues. The report draws attention to risks including rising energy prices, changes in energy supply, changing transport patterns, shortages of resources such as water and base metals, risks to crop yields, pollution and large scale migration – many of which relate to climate risk3. FSB Task Force on Climate-related Financial Disclosures The mission of the FSB TCFD, launched during the COP21 Paris climate talks in December 2015, is to ‘develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders’ – which, in brief, aims to help guard against the destabilising effects of climate change for financial markets. The TCFD is fronted by former New York mayor Michael Bloomberg, following his appointment by Financial Stability Board chair Mark Carney, Governor of the Bank of England – which makes it a pretty big deal. Their first draft report is on their website4. Practical help One of the biggest challenges for pensions and investment practitioners in this area has been a lack of practical support finding appropriate fund options. Most major investment research providers offer little real help in this area. There are however expert research providers that can help, such as Ethical Screening Ltd, Vigeo Eiris and MSCI. A useful place to start for those researching retail funds
1. www.actuaries.org.uk/news-and-insights/media-centre/media-releases-and-statements/ifoa-warns-climate-change-financial-risks 2. www.actuaries.org.uk/news-and-insights/news/risk-alert-climate-related-risks 3. www.fundecomarket.co.uk/help/wp-content/uploads/Resource-and-Environment-Practical-Guide-for-Pension-Actuaries_2017.pdf 4. www.fsb-tcfd.org/about/ 5. www.FundEcoMarket.co.uk
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however is the free to use, fund manager sponsored, online fund hub Fund EcoMarket5. Fund EcoMarket is primarily intended for financial advisers but can be equally helpful for others interested in retail funds. The site helps to showcase the diversity of sustainable, responsible and ethical investment options and strategies so that users can match investor aims to fund options.
With regard to climate risk, users can: • Find retail funds with Sustainability or Environmental Themes, by using the ‘SRI Styles’ filter. •F ind fund specific policy information such as ‘has a climate change policy’, ‘excludes coal, oil and gas’, ‘limits exposure to carbon intensive industry’ and/or ‘invest in clean energy companies’ by using the ‘SRI Policy’ filter.
I am not unbiased, as this is the tool my company has created. However, it did come about largely as a result of my own frustration with the lack of detailed, reliable, comparable, fund specific information, which experience had taught me was clearly holding this area back.
•F ind more generic information such as ‘boutique/specialist fund manager’, or ‘favour cleaner, greener companies’, ‘balance company pros and cons/ apply best in sector selection’ by using the ‘SRI Features’ filter.
About Fund EcoMarket
• I dentify and research related ‘Corporate Activity’.
The tool has been designed to work on a number of different levels. It offers a segmentation methodology, ‘SRI Styles’, filter options and in-depth SRI only information plus url links provided by fund managers.
As these options illustrate, one of the core principles of this area is that few aspects are entirely black or white. Opinions, strategies and aims vary amongst and between fund managers, trustees and individual investors – which is why so many diverse options exist. A further helpful principle is that there is no single ‘perfect’ investor
response to climate risks. Sadly, no magic wand – and no single fund that will suit everyone. Some funds avoid a few (or many) companies, some offer ‘best in sector’ or thematic strategies, others engagement, voting and responsible share ownership strategies. My personal view is that each of these has an essential role to play and used wisely most can help manage climate risk and enhance shareholder returns in line with investor’s various aims. The key message from Nico’s presentation, the Institute of Actuaries, the FSB and COP21 is that climate risk is no longer open to debate. This area has been sidelined for too long by much of the investment community and now is the time for scheme advisers and others to upskill in the interest of scheme members and others today and in the future. My thanks (as a pension scheme member and as a mother) go to the above for their excellent, far sighted work. I now look forward to seeing how the new PISCES team can help to advance this essential area.
Julia Dreblow – SRI specialist and founder of sriServices and Fund EcoMarket.co.uk Julia (BA Hons, Dip PFS) has worked in financial services since 1989 and has specialised in sustainable, responsible and ethical investment since the mid 90s. She is now involved in specialist SRI consultancy, advisory and speaker work. She runs two websites www.sriServices. co.uk and the fund manager-sponsored SRI information hub www. FundEcoMarket.co.uk. Her work was awarded ‘Highly Commended’ in the 2015 Corporation of London Sustainable City Awards and was again shortlisted for this and two Investment Week awards in 2016. Julia started her career as a broker consultant at NPI and then Friends Provident - where she was SRI Marketing Manager until 2008. She is a former UKSIF director, chaired their Retail Sub Committee and helped set up ‘Good Money Week’.
FREE IF IN CREDIT: MIS(ING) INFORMATION
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The Transparency Task Force moves to strengthen consumer confidence by improving transparency and clarity for current accounts
Alex Letts introduces our ‘Free If In Credit – Mis(ing) Information’ report
The Transparency Task Force’s Banking Team is seeking to drive up the levels of transparency in the banking sector, for the benefit of all. Heather Buchanan (Director of Policy at the All-Party Parliamentary Group on Fairer Business Banking) heads up our Business Banking activities while I lead on Retail Banking. We have produced a report, entitled ‘Free If In Credit - Mis(ing) Information’, which was a result of co-operation between respected industry bodies and extensive new research and analysis of previous studies. The aim was to present these findings to an allparty parliamentary group of MPs and key figures within the retail banking industry at the Palace of Westminster, with a view to pursuing its main recommendations. The report is based on these key facts1: • 68 million active UK current accounts. • 62% of all accounts are ‘Free-ifin-credit’ accounts. • £2.9 billion paid in overdraft fees in 2014. • £4.3 billion paid by way of interest foregone in 2014. • 44% of Free-if-in-credit accounts attract overdraft charges.
•8 0% of consumers do not appreciate the scale of fees they are facing in relation to their overdraft usage.
REPORT SUMMARY In the face of growing commentary about the lack of transparency around charges for Free-if-incredit personal current accounts, and after years of reviews into the cost of current accounts, it has been found repeatedly that consumers do not perceive themselves to be paying for current accounts. We have published a set of recommendations to help strengthen consumer confidence by improving transparency and clarity for banks, building societies, and other providers of such accounts. Our report addresses these concerns and proposes a Standardisation Programme to reduce potential consumer confusion caused by opaque and
1. The sources for these facts can be found in the report.
incomparable overdraft charges, and to increase customer satisfaction scores for the retail banks. The key recommendations are: 1. Standardisation of terminology relating to account types so that consumers can easily compare accounts and their charges. 2. Standardisation of charging terminology so that consumers are clearer on what charges they may face. 3. Standardisation of charging rules so that consumers can understand more easily when they may incur charges. 4. Illustrative examples and average costs paid per account of consumers holding an account so that consumers can easily identify the costs of the financial product they hold or are considering. We recommend that as an immediate first step, all banks, building societies and account providers should agree to describe their Free-if-in-credit accounts as ‘Standard Accounts’, with a view to implementing and deploying the standard terminology for account types, charges and related charging rules across all UK retail banks.
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RATIONALE Free-if-in-credit is a really foggy category particularly because each bank has its own terminology for this type of account, and the signposting is very poor. The banks very sensibly agreed that their entry level account should be called ‘Basic’ and this has worked extremely well. Now, they have the opportunity to bring such clarity to their core account. Our report recommends calling it the ‘Standard’ account. Transparency is a win-win for banks and their customers. It will help protect consumers, it will contribute to rebuilding trust in the industry, and it will facilitate account comparisons and switching of accounts, which is a Competition and Markets Authority (CMA) imperative.
PALACE OF WESTMINSTER MEETING On Monday 26 June 2017, I presented the findings of the report alongside the distinguished cross-bench peer and experienced banking industry
expert Lord Cromwell, in Committee Room 1 of the Houses of Parliament. Also in attendance were a number of key figures in the banking industry, along with senior representatives from the CMA, the Financial Conduct Authority and other respected and highly relevant organisations and industry bodies such as Big Society Capital, The Joseph Rowntree Foundation, The Financial Inclusion Commission, The Banking Standards Board, The UK Accreditation Service, The Community Savings Bank Association, The Fair Banking Foundation, The British Bankers’ Association and others. The event was covered in the Monday 26 June edition of The Times newspaper, with a story stating ‘Banking costs are still not clear, says report’.
If you would like to read our report in full you can download it from from here, scrolling to the bottom of the page: http://www. transparencytaskforce.org/ downloads/
Furthermore, I am pleased to advise that as leader of the TTF’s Retail Banking Initiative, I have since spoken to a number of leading figures in the industry, who have expressed their approval at the report, and the pursuit of transparency continues.
Alex Letts Alex Letts is Founder and Chief Executive Officer of U. He has spent his career challenging the status quo in major industries with banking the latest in his sights. Alex was educated at Oxford, and was trained in consumer advertising at Y&R, then the world’s largest advertising agency group. In 1989 he opened his own advertising agency specialising in technology marketing, which in the next 8 years became the largest B2B agency in Europe. He sold the company to Groupe Publicis and after 3 years running the Publicis Technology network, Alex raised $50m to create a reinsurance trading exchange in the London & Lloyd’s market. This was sold to the Qatari Financial Centre in 2010. Alex founded the company in mid 2011 and launched Ffrees, the first digital alternative to the banking sector’s current account service. It has now re-written the operational and business model for current account provision so that a premium experience can be delivered to anyone, regardless of financial or social status. This new service is called The Unbank of U. Alex believes that the old banking service model, which has evolved over 300 years, can be completely changed by lower cost, higher quality fintech-based platforms with an understanding of the digital customer’s lifestyle, needs and financial requirements. This will bring access for all, and engagement and quality of service never previously experienced by preceding generations.
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SYMPOSIUM Our regular meetings where we discuss and debate all things transparency in financial services.
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T R O P H Y How we recognise particular contributions to the transparency cause. Awarded at each Transparency Symposium and always open for nominations.
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a n article to the next Transparency Times. Articles of 250-1,500 words are welcomed along with a 100-word biography, print quality head shot and logo and your Twitter handle.
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THE AMSTERDAM TRANSPARENCY SYMPOSIUM 26 October 2017
Aon Hewitt, Paalbergweg 2-4, 1105 AG, Amsterdam Many thanks Marlon Sahetapy, Principal at Aon Hewitt’s Global Investment Practice, who has very kindly agreed to host this Transparency Symposium. Thanks also to David Pitt-Watson, Executive Fellow at the London Business School and an Ambassador of the Transparency Task Force who very thoughtfully introduced Marlon to the TTF.
Please contact firstname.lastname@example.org if you’re are interested in getting involved with the Amsterdam Transparency Symposium as a speaker, delegate, panelist, sponsor or media partner or if you’d like more information.
THE CAPE TOWN TRANSPARENCY SYMPOSIUM 24 January 2018
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Published on Jul 24, 2017
The Transparency Task Force is the collaborative, campaigning community, dedicated to driving up the levels of transparency in financial ser...