It’s been a long time since I’ve posted. The problem – the hardware- my PC really wan’t up to the task and I’m on a cool Mac Air as I type.
So what’s happened since last we met?
There are many who consider the quick sequence of events that led from the OFT report to the DWP’s consultation on charges, catastrophic for pensions. If they mean by “pensions”, the regime that has dominated provision for the past 25 years these have been disastrous months.
The RDR started it, the abortion of consultancy charges continued it and the double whammy of OFT and the charge cap consultation look like finishing the job.
The balance of power is shifting, as AE required, from distribution to consumer. The consumer, the employer and his or her staff now call the shots. The providers, the fund managers and the platform managers will have to work within the tough confines of a cap.
With this shift from distributor to consumer, we see a new purchasing model emerging. Between the market disturbances, we launched http://www.pensionplaypen.com and now offer employers the opportunity to get the best workplace pension for their staff, without dipping into their pocket.
There are nuances. The most important aspect of the consultancy charge consultation has nothing to do with commission or Active Member Discounts, the lasting impact of the consultation will be the decisions taken on what have been called ‘hidden charges’.
The revelations on what has been going on behind our backs between fund and platform managers, between broker and fund managers and with the dark arts of the custodians, the traders and those who manage the dark pools of liquidity, beggar belief.
We have begun to understand the true implications of the Kay report. How the various layers of intermediation eat into the outcomes of the financial products into which we invest.
So what do we expect to happen? We confidently predict that the DWP will adopt a formulation on the charge cap adjacent to the http://www.pensionplaypen.com submission in which we have suggested that the cap should include all charges ‘earned’ rather than the current -weak – TER formulation or the unworkable formula of total charges “including market impact”.
For the fund and platform managers this will be very tough. It will all but exclude active asset managers from auto-enrolled pensions. As auto-enrolment looks like being the mainstream means of providing pensions, this suggests that- for now – active managers will be marginalised.
For the platform managers, the challenge is not just to buy asset management at rock bottom prices but to include in the mix all the other services they wish to offer to employers and their staff. Platform managers, like fund managers will need to scale back their ambition to be included in auto-enrolment.
Finally we have the fiduciaries, those who have the task of purchasing and managing the workplace pensions tasked with delivering good outcomes. Their task can only get harder. Not only will they have to monitor the performance of the various moving parts of the pensions under their control, they will also have to ensure that the aggregated costs of the services do not exceed the cap.
We see the age of the amateur fiduciary as drawing to a close. DB , when it goes wrong, reverts to the employer but DC failure is borne by the individual member. There is no margin for error.
It’s good to be back but in the couple of months this blog has been off-air, the world’s changed- changed utterly – a terrible beauty’s been borne.