Friends Life has (in it’s new Aviva colours) decided to U-turn and not offer people the freedom of the bank account to its personal pension policyholders. Ros Altmann has laid into the insurance industry- as Pension Minister – and the Telegraph run a front page article claiming millions are being denied their fundamental pension rights.
It all sounds a little far-fetched. Even a couple of years ago this would have been dubbed the kind of pension fiction you’d have read about on this blog and laughed off as the crazed ramblings of a pension nutter. But this is Britain in mid 2015 and this is going to be the tone of the next few years.
It’s not just in the UK either.
In February, President Obama announced that the Department of Labor would re-draft a rule that would require investment professionals who advise retirement plan participants to follow a higher standard. The new proposal would require investment professionals that advise American DC retirees to act as “fiduciaries”.
As fiduciary advisors, investment professionals must recommend investment products that are in their participants’ “best interest.” The current rules require only that recommended investment products to be “suitable.” Under the more stringent fiduciary standard, advisors would need to justify recommending an investment that carries more expensive fees than other investments, or when recommending investments that may be underperforming.
What’s going on?
The new rules are designed to remove conflicts of interest. Guess what, it turns out that advisers have been recommending investments that benefit them to the detriment of policyholders.
The White House Council of Economic Advisers released a report on Feb. 23 that showed that these conflicts of interest may cost investors an average of 1 percentage point on their investment returns each year.
The Land of the Free?
What’s more – employers could be held liable for the advice of non-fiduciary consultants.
People opposed to the change point out that it would limit participants from working with the advisor(s) of their choice, and might cause them to have to pay more for investment advice.
What joins these two stories together is the emergence of a new consumerism that is being adopted in 10 Downing Street and the White House. The new consumerism is no respecter of the conventions of the pension industry. It expects the providers of financial services to not just treat customers fairly, but to put the customer first.
Let my pension go
A friend of mine tells the story of being asked to provide a communications strategy to a Bank which in 2009 was suffering a run of withdrawals from consumers worried about its safety.
The expectation that a tough new regime would be recommended that would stem the flow.
To the Bank’s astonishment, the strategy my friend came up with was to welcome the customer’s request, to facilitate the transfer and then to provide a listening ear. The listening ear followed the question “what’s worrying you?”.
The Bank reckons that , once it adopted the strategy, it retained £500m more than if it had continued blocking the flow of money.
As Ros Altmann says,
“The [pensions] industry has had over a year to prepare for the changes – and it is encouraging that some firms have risen to the challenge. But others seem to be failing to move with the times and are still acting as if nothing has changed.”
Over the past year, First Actuarial has tried to engage with a number of insurers to introduce technology into insurers that would allow them to adopt the new freedoms and offer policyholders the freedom of a pension bank account.
We have been met by the industry’s mantra “there’s no such thing as first-mover advantage”.