A little tardy (but not as tardy as fellow auto-enrolment SIPP, Intelligent money, True Potential has produced its IGC report, you can read it here. You would have to be good at web navigation and persevering, to find it. I hope that True Potential give it better positioning as this is the only document that properly addresses the concerns employers should have when conducting auto-enrolment due diligence.
First Actuarial is currently researching True Potential as an auto-enrolment provider and we’ve found the IGC report helpful in our work. That’s because it is clear , concise and well written. It does however only touch the skin of the problems it sets out to explore, principally whether True Potential is getting members value for money for its members.
True Potential (TP) is different
A recurring theme of the report is that TP is not as other SIPPs. I am judging it as a workplace pension, qualifying to take auto-enrolment contributions and one (I see no reason to doubt) could satisfy the Pensions Regulator’s requirement to be available to all employers.
But it was not set up for this purpose. TP tell me that it was concerted to an AE pension only to meet the needs of TP’s own staff and was made available to the public as a result of adviser demand.
So far it has only attracted employers who in total can offer 8,000 employees (members) to enrolment. But of these 8,000, an impressive 1500 have accessed their pension accounts to find out what is going on. I suspect this represents the highest level of engagement of any workplace provider (though Hargreaves Lansdown might dispute this).
The reason for this engagement is plain to see – simply by going on the True Potential website, this is an organisation that puts communicating with its customers first.
Value for money
True Potential’s IGC committee consists of specialists who understand the specialist SIPP market. This seems appropriate. Brian Shearing, the Chair is a management consultant helping firms like TP to construct, position and price its proposition to the market. He must manage the conflict between wanting to create shareholder value for TP and acting (as he does here) in the interests of members. The two are not the same thing!
The other “independent” members of the trust board, Russell Hogan and David Keir are actively involved in investment management with fund managers Saracen and Dundas respectively. There is a further conflict for them, not just as their managers are potentially able to offer investments through the TP product but that – more generally – they have every reason to maintain high fund management charges.
This would not be so much of an issue if i felt that members were paying the right price for their investment funds, but I don’t. Unusually (and commendably) the TP IGC actually publish the price that members pay for investment and other services.
Typically, investors pay 0.31% for access to a range of risk-rated investment funds from Legal and General and 0.40% for the administration and communication of the pension itself.
I use a very similar product to the L&G Multi Index Fund; I use the institutional version – the Multi-Asset Fund and I pay 0.13% for it. Legal & General also (very transparently) tell me that their product charges a very similar (to TP) 0.37% for administration and communication.
So why are TP customers paying more than twice as much for the same fund as I am (within the L&G workplace pension/SIPP)? We will put aside more difficult questions as to whether L&G are providing true and fair pricing for next year. Brian Shearing and his colleagues should be addressing this issue now and the fact that they haven’t yet (for all the good things about their VFM section , marks them down.
Choice (and how employer’s choose)
More pertinently, why hasn’t the IGC worked out that L&G has a similar fund offered at less than half the price and why isn’t it pressing either for similar pricing on its fund or for the use of the Multi-Asset pooled fund that I’m in?
I have asked this question of TP and as we continue to do our due diligence will continue to ask the question. I will also ask TP whether providing employers with a choice of five defaults for their staff is a meaningful choice and what feedback they are getting from employers about how they came to the default decision.
In my opinion, this degree of choice is not helpful, unless an employer is able to thoroughly understand the investment needs of its workforce. Indeed I think this choice is unhelpful, for unless there is a single default, the employer is at risk of making an investment decision on behalf of staff based on a half-baked understanding of the needs of the staff. This is dangerously close to making the employer the financial adviser.
I hope that the IGC will focus on the advisability of five separate defaults and ask whether this does more harm than good. It is good that understanding the employer’s decision making process is one of the six action points for 2016/17, but there are a lot of decisions to be taken before the next report – we hope that this will be given more urgency.
In my view, the report (bearing in mind the IGC had no legacy issues to deal with, could have been more effective in 2016.
The tone of the report
As you’d expect from a committee dominated by two CIOs and a SIPP management consultant, the report reads like an extended investment commentary. The IGC is keen on member engagement and rightly praise TP for its work on making available all the pension freedom boxes and for the flexibility of its contribution collection system (Impulse Save).
But it has difficulty speaking a language that puts clear blue water between the promotion of TP that we’d find on the provider’s website and the scrutiny of the proposition that we expect from the IGC.
Critically, when the IGC Chair outlines next year’s actions , they are woolly. Apart from “ensuring” that a member survey is carried out, every action is reactive
“review- understand-monitor- monitor -note”
The 8,000 members of the TP workplace plan will be joined by many more over the next twelve months and they will be joining a proposition that is only finding its feet. The funds look mis-priced, choice looks overwhelming , I want to see a report that has a more assertive and self-confident tone. I want Brian Shearing to be exercising his skills as a management consultant and for the CIOs to be asking some searching questions about choice and price.
This is an “ok for starters” report, and its good in parts (and I think it is very well laid out and written). But it is lazy in its engagement with members, doesn’t have the necessary assertion and shows that the IGC has yet to become effective. I like the way that the VFM assessment is shaping up and I commend the IGC on focussing on price but there is too big a cap between what I know TP is capable of and what it is actually delivering to commend the IGC for working out value for money.
For these reasons, I am giving the report an amber on all three of my measures. An amber for tone, and amber for its value for money score and an amber for effectiveness. For the IGC to unveil its true potential, it will have to show some teeth and soon.