In one of the noisiest and most passionate lunches we’ve ever had the playpen voted 15-7-3 for TDFs vLifestyle with 3 spoilt votes from the “we don’t do default” gang.
This was a lunch where we were pretty well split between the undecided and the committed. Committed to TDF were Henry Cobbe and Gallia Grimston of Elston Consulting, who provide advice within TDFs. Comitted to Lifestyle was former Watson’s consultant turned insurance rep. PJ Zoulias of Aviva , a firm that doesn’t do TDFs but does do lifestyle. PJ was unsurprisingly committed to lifestyle.
PJ’s argument centred around personal choice of asset mix and manager selection which apparently is available within some lifestyle options.
Henry argued that the TDFs were collective solutions that allowed those decisions to be taken by experts (like him).
It has to be said that while the committed knocked seven bells out of each other, there was a degree of bemusement from other parts of the room.
Brian Morgan eloquently pointed out that whatever the answer , the question was really about which structure gave better member outcomes and should be elevated above a consultant v fund manager squabble.
A clear distinction was drawn between a mechanistic approach to managing a lifestyle glide path compared to the discretionary approach found within most target date funds but again there was some disquiet in the room that the TDF approach might just as well be mechanistic and that the argument was being hi-jacked by consultants paddling their own canoes.
The TDF brigade were on stronger ground when the argument moved to operational efficiency. There was considerable support for the view that there managing a glide path within the fund rather than through buying and selling units sounded a lot cheaper and carried less risk of things going wrong.
The argument for TDFs seemed to be clinched by a realisation within the room , that as a collective enterprise, TDFs offered the fiduciary the opportunity to measure and so to provide some constructive governance (plenty of applause from the lawyers).
With pies , fish and chips and sandwiches in the offing, the vote showed a surprisingly large majority in favour of the collective TDF. PJ is however to be congratulated for sticking to his guns and to providing a robust and prolonged assault on the false arguments employed by (among others ) myself!
It was noted that despite the prevailing swing towards TDFs, no one in the room was in a scheme that offered them! Note to product managers.
Perhaps the last words should go to the journalist in the room. Richard Evans of the Telegraph smiled benignly at me and remarked
I have never sat through a debate so little of which I understood.
Richard is surely right, whatever your view on the subject, we’ve got to find a better way of constructing our arguments and expressing our views.
The TDF v lifestyle debate is in its infancy, If it is to get beyond the arcane dispute of the investment consultants, we need to find a new language that doesn’t baffle the sobre young hack!
Apologies to any I have missed or mispelled
- Better ways to diversify the default. (henrytapper.com)
- DC4Good; ABdc and the Pension Trust get it. (henrytapper.com)
Thanks Henry, it was an enjoyable first Play Pen experience, and good to meet some of you.
I should probably clarify one important thing – Aviva is able to support TDFs, they are just funds after all. Aviva Investors could indeed choose to make a proposition out of them also, if it wished. There is no “house bias” against them, that I am aware of at least. That doesn’t mean there is a business case for them.
I’ll also point out that I don’t believe anyone indicated support for Lifestyle at the opening vote 🙂
Anyway, I’d like to make the position that I expressed on this front a little clearer – appreciate it may have been difficult at times to follow some of the nuances and I won’t hope to repeat all the pros and cons, variants (eg multiple types of TFD, Lifestyle) here.
At their hear Lifestyle and TDF are simply different administrative ways of approaching a glidepath implementation, and nothing more. One does so within a fund, one does so through member record keeping. There is very little that can be achieved by one from an investment perspective that cannot be achieved by the other.
As I mentioned in my opening statement, TDFs hold their own in an environment where operational simplicity and lack of member choice are the paramount considerations. As you’ll recall, I said it was a “no brainer” for NEST to use them. They also have an edge where there is a desire – which some will be for and some against – to actively manage the glidepath.
However the moment one deviates from this model, TDFs largely fall flat. If you have permutations (drawdown, level/escalating/cash only) in your consolidation approach, or indeed in your growth, you multiply the required fund links to such an extent that any solution quickly becomes unviable. Indeed, in a competetive market (who expects the market, after all, to wants just a single manager’s set of TDFs?) even absent these choices managing fund proliferation becomes a serious issue.
Fundamentally only a system which operates based on the member record (need not be Lifestyle, but of the available options, that) can support an investment strategy pertinent to a member. Fund based strategies are by definition agnostic of their investors. When you get into the detail and more advanced investment and/or engagement projects, this becomes obvious.
I’ll leave it at that; I won’t go into the fiduciary control / delegation arguments but if anyone wants to get in touch feel free.
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Wow amazing. playpen looks very fun.