“Ease of use” or “value for money”?

lewis price

Paul Lewis, above all other financial journalists is the master of the 140 character tweet. Here is one of his very best, embedded in a conversation with Louise Cooper.

The genius is in the “compete mainly on rhetoric and ease of use”

Rhetoric –  my definition “persuasive without sincerity”.

Ease of use – well read the recent blog by Julius Pursaill which argues, as Paul does, that confusing a nice ride with value for money can only maintain the status quo.

Value for money is about outcomes and not the member experience.


No vfm in wealth management

I’m not getting dragged into a debate on the vfm of wealth management propositions. Relative to what can be purchased from NEST, Peoples, L&G and Aviva as workplace pensions, the cost of investing through wealth platforms is outrageous.

They can only justify themselves through rhetoric and ease of use, but the harsh winds of an FCA review into platform charging, are already blowing at their door.

But as Louise Cooper points out at the top of the page, these platforms are still bringing in more than is going out the door; and – so long as all parties are paid on funds under management – a year when markets inflate by 15% means a 15% revenue rise all round. Nice work if you can get  it, and plenty can.

People pay a high price for platforms, portals and for the leather sofas. The people who pay for this kind of “stockbroker” wealth management are at least avoiding the scammers, Angie Brooks and Chris Lean are busy cleaning up after those who don’t. There is “ease of use” and “rhetoric” among the scammers too.


Why are workplace pensions different?

The Government has taken control of the workplace pension market and made it efficient. Out has gone consultancy charging and commission, in have come IGCs, the controls of the Pensions Bill (Act) and the price cap.

The value for money debate within workplace pensions is arguing over the hidden costs of workplace pensions, these costs don’t add up to a row of beans relative to the money that is being frittered away on wealth management!

Workplace pensions are different because they are products that employers have to have. There is no rhetoric in auto-enrolment and for us “ease of use” is about the efficiency of the process, not a frictionless sluice for management fees.


Let’s do a road test comparing St James Place Wealth Management platform and L&G’s Workplace Pension Savings Plan.

This is what I paid my workplace pension provider last month to manage c £400k of money in global equities.

slippage

That £46.80 included the cost of the investment platform, L&G’s workplace pension policy costs as well as the 0.1% I’m paying for my fund (0.12% with slippage costs).

slippage 2I know what the slippage costs are because L&G have published them for this fund through its IGC report.

My total costs on my workplace pension are no more than the £46.12 in AMC and £6.67 in slippage (£52.79 in total).


Price shoot out

Now lets do the maths on £400,000 in that St James Place fund

up to 5% on the way in – £20,000

1.85% a year  – £7,400 or £617 pm

6% exit fee year one -£24,000

Slippage – no idea.

Ok so you are unlikely to take your money away in the first year but that 6% only tapers to 0% in year 6, you are effectively locked in to 5x £7400 = £37,000 of management fees (uprated by the market performance). Add to that upfront costs of up to £20,000 and the cost comparison between investing with St James Place and L&G workplace pension savings plan (over five years)  looks like

SJP  £37000 +initial +slippage against L&G’s £3,100 all in.

It looks even worse for SJP over 4, 3, 2 and 1 years.


The choice is yours – “rhetoric and ease of use” or “value for money”.

Take your pick.

Thanks Paul.

 

 

 

 

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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