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I’ve written elsewhere that I was broadly in agreement with NEST’s investment approach – concentration on default – use of passive funds (low volatility  and low cost), diversified  beta – all good stuff.

I am withdrawing my unqualified support.

I went to a good seminar the other night on Government Regulation. The assumption I went into the meeting with was that Regulation was designed to protect the consumer, my realisation during the meeting was that Regulation is there to protect Government.

Much the same can be said about default funds which are supposed to protect the average DC member (who I have elsewhere referred to as bunnies”)  from making stupid investment decisions including the decision not to invest our of fear of getting things wrong,

Reading the details of NEST’s default investment strategy, I draw the conclusion that rather than protecting the members , the strategy is designed to protect NEST from complaints from the members and ultimately Government from complaints about NEST.

I’m speaking principally about the weird decision to ease NEST investors using the default fund into equity backed investment through a “cautious balanced” approach to investment in the early years of their investment career.

The impact of adopting such a sub-optimal approach will be mitigated by the fact that investors will have insufficient funds for the approach to make much of a long-term difference. The upside impact is presumably thought to be that such inexperienced investors would otherwise opt-out of NEST when seeing their accounts reduce in value due to market volatility.

If you got confused by that last paragraph- my polagies- it was written in the kind of investment speak loved of people who attend events on NEST.

In everyday speak-this pat of  the NEST default investment approach is patronising nonsense and it s only merit is to NEST and Government (see opinion on Government Regulation above).

The sad truth for investment consultants is that there is ridiculously little for them to do in DC land. They can collect information on investment decisions, study the impact of alternate investment strategies and wonder about perverse behavioural patterns till they are long in the tooth but I have yet to see them make much difference to the way in which DC funds accumulate. They would be better off thinking about how to decumulate the DC pots using collective structures (but no more of that!).

The sad truth for DC investors is that they have to pay for investment consultants to pontificate about DC default strategies and put-up with the nonsense that arises (because if consultants couldn’t come up with something different from what everyone is doing there wouldn’t be any point of having them).

Which frankly there isn’t.

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