The Competition and Markets Authority has produced the first of a series of working papers (only 90 pages) looking at the buy-side of institutional intermediation (e.g. what happens between buying an asset and the return the customer gets).
“The evidence reviewed so far indicates that competitive processes are not providing customers with the necessary information to judge the value for money of investment consultants and fiduciary managers.
“The potential competition concern with this is that customers are not well-equipped to choose, and subsequently monitor the performance of, their provider and in turn to drive competition between investment consultants, and between fiduciary managers.”
For investment consultant – read “financial adviser” and for “fiduciary manager” read “discretionary fund manager” and you can read straight across from institutional to retail.
Vertical integration – the practice where advisers morph into wealth managers, means financial advisers and investment consultants are becoming little more than the sales people who bring the money in and keep the customers quiet. (distribution and customer relationship management)
The lines between retail and institutional are further blurred by the “intermediation” going on within our great DB schemes. The news that total CETVs paid from Barclays DB scheme were £4.2bn in 2017, should be attracting the CMA’s attention. £4.2bn is a pretty meaty slab of cash, representing the assets of some of our largest DB plans.
And yet it is being taken on a journey that the FCA has analysed as follows
Following the FCA’s methodology, only £1.5bn of that money would have found a “suitable” recommended product. £2.75bn of that money was destined to unsuitable products – or products where the suitability was unclear.
Where is the money going?
We don’t need to be Hercule Poirot, to make some connections. Here is the Tideway pitch (made ironically to the Group Head of Pensions at one of the banking schemes most impacted by transfers in 2017)
Tideway Investment Partners LLP is an independently-owned financial advice and investment management business, specialising in providing defined benefit pension transfer advice and secure investment portfolios. Up to the end of 2017, we had completed around 1,400 transfers with a large number of them deferred members of the Lloyds Bank schemes.
We have a number of free workshops around the country throughout March 2018, covering the pros and cons of transferring out. Given that we have already successfully represented Lloyds scheme members when they transferred out, we thought we would contact you in case you were able to share details of the events with any of your deferred members or any active members approaching retirement.
Our workshops are as follows
- 6 March 2018, Chepstow
- 7 March, Manchester
- 14 March, London
- 20 March, Norwich
- 28 March, Aberdeen
Registration details can be found on our website at www.finalsalarytransfer.com.
The events will be hosted by Tideway managing partner James Baxter, widely acknowledged as a leading UK commentator on DB transfers, and often quoted in leading national business/personal finance pages. James regularly appears in the Daily and Sunday Telegraph, along with the Times, Sunday Times and the FT.
Tideway are quite comfortable with this kind of language, as well they should be. Tideway partners (members) presented their report and accounts for 2017 with this statement
The same hyperbolic results were presented to the shareholders of St James’ Place
St. James’s Place Annual results for the year ended 31 December 2017
28 Jul 2017
RECORD BUSINESS PERFORMANCE SUPPORTS 30% INCREASE IN FULL YEAR DIVIDEND
View the financial highlights and CEO commentary below for the year ended 31 December 2017.
|EEV New business profits (£m)||779.8||520.2||50%|
|EEV Operating profits (£m)||918.5||673.6||36%|
|IFRS profit before shareholder tax (£m)||186.1||140.6||32%|
|Operating cash result (post tax £m)||315.2||226.0||39%|
|Underlying cash result (post tax £m)||281.2||199.5||41%|
|Underlying cash earnings (pence per share)||53.6||38.2||40%|
The horse that bolted -is now re-stabled
Despite these eye-watering depletions of our DB schemes and the equally eye-watering increases in shareholder and member returns from these vertically integrated wealth managers , nobody seems to be making any connection.
But anyone familiar with the ways of retail wealth management and institutional fiduciary management will see precisely the same business model at work.
The main difference is that the margins achievable in the retail space are even higher than those in the institutional space.
I have the same message for Dr Sier and the IDWG as I do for the CMA – follow the money.
We can no longer consider CETVs a retail issue, nor can we consider Tideway, SJP or the major platform managers (Hargreaves, Nucleus, Aviva, Transact, Co-funds etc.) as retail platforms.
The scale of transfers is now so great and the speed of movement of money so fast, that by the time the IDWG has completed its template, many of the horses will have bolted. True they may have been re-captured and put into new stables, but those stables – so long as they are “retail stables” will fall outside the scope of the IDWG and CMA’s institutional reviews.
Whatever happened to the disintermediated solution?
We have an odd understanding of wealth. My browser is flooded with adverts from wealth managers telling me that with £250,000 I am a wealthy pensioner. But £250k wouldn’t even buy me my entitlement to the state basic pension.
People who find themselves with CETV’s worth quarter of a million or more, are being told they are wealthy and channelled into wealth management solutions. Pension managers I speak to speak of tens if not hundreds of members joining the same SIPP with monies being allocated to the same DFM. A classic example of this is the use of the Vega Algorithm within Momentum and Intelligent SIPPs by steelworkers at Port Talbot.
The idea of a SIPP was that it was “self-invested”, but that’s not what the steelworkers were and are expecting.
Most steelworkers I’ve spoken to are simply swapping one set of fiduciaries (trustees and their CIO Hugh Smart) for another set of fiduciaries (advisers and their CIO – ?).
The “wealth solutions” being offered to most Port Talbot steelworkers were almost certainly falling into the “unsuitable” or “unclear” categories established by the FCA. This is why Port Talbot has become the focus for thinking about a “transfer scandal”.
But Port Talbot is no more than the tip of an iceberg that’s huge underwater mass is now emerging through Barclays reporting – a £4,151,000,000 pension scheme CETV in 2017.
Barclays has a very good workplace pension scheme (run by Legal and General on fabulous terms for the members).
Lloyds Banking Group has a self-administered workplace pension scheme (with charges paid for by the Bank)
Tata and Liberty have workplace pension schemes run by Aviva and L&G respectively, both have default options which cost less than 0.30% of funds under management.
Compare this with a typical advisory charge (1%), platform charge (0.40%), DFM charge (0.5%) and underlying asset management charge (1%) and you can see how easily an intermediated “wealth” solution can cost 10 times the non-intermediated workplace solution. In a world where expected drawdowns run at 4-5% of assets, a 2.7% charge cap between the workplace and wealth solution represents a 50% cut in post retirement income. And this is before account of transaction charges.
The disintermediated solution has a stable all of its own, but no CETVs ever end up there!
A money merry-go-round where everyone wins but the consumer
We of course know why. The “Tideways” and the “SJPs” are not alone. Up and down the country, the DFMs of IFAs are filling up with monies transferred from defined benefit occupational schemes though a practice called conditional pricing.
Tideway are perhaps the most vocal advocates of conditional fees, I have even given Peter Doherty, its CEO, a platform on this blog to argue his case. The argument is that by paying your fees out of your transferred fund, you can afford the transfer in the first place. This argument is given credence by a tax system that allows intermediaries to avoid charging VAT at 20% on advisory fees taken from the transferred fund and allows those fees to be paid from a tax-privileged source (a pension fund) rather than from taxed income.
I am quite sure that everyone from accountants to solicitors envy the privilege accorded wealth managers to levy fees to “wealthy clients” without VAT and from a tax-free fund.
That we – the taxpayers – are offering this privilege to the vast majority of those transferring from BSPS, Barclays, Lloyds and many other well-run DB schemes is beyond me.
Why we are using tax-payers money to reward the advisers , shareholders and partners of Tideway, SJP and other wealth managers is beyond me.
And why we are not banning contingent pricing and with it the conflicts associated with recommending an in-house wealth management solution over non-intermediated workplace pension solutions is also beyond me.
The wrong stones
As for the CMA and IDWG, I fear they are looking for the right grubs, but under the wrong stones!