The general reader is introduced to the 2019 IGC report with a statement from Fidelity

An IGC is an Independent Governance Committee whose purpose is to represent the interests of policyholders (including active and deferred members) in the company’s relevant schemes.

“Policyholder- member (active and deferred), company, relevant”… in one sentence the ordinary reader has been presented with a bunch of concepts, none of which are explained, many of which remain mysterious even to me. What company – how relevant – what schemes?

We are then told that the key duty of the IGC is to “report to the FIL Life Board”. The ambiguity in “report” going unexplained though most readers will assume the IGC is part of Fidelity’s board structure rather than independent of it.

This from one of the world’s premier consumer facing financial services brands.

Fidelity’s book of workplace pensions is sponsored by some of Britain’s leading companies who maintain a paternalistic attitude to their employees’ retirement.  Funding levels on Fidelity policies are well above AE minima and as many of their “schemes”, were established to replace DB, the funding level reflects historic contribution levels to provide guaranteed inflation linked pensions.

For Fidelity, DC is still thought of as a DB replacement, hence the confusion over language and the ambiguity over the IGC’s purpose.

Tone of the IGC

The  IGC Chair statement repeats this confusion . It still talks of “deferred members” as people who’ve left employment as if all workplace pensions are trust-based (most of Fidelity’s aren’t).

The IGC is here for people in Fidelity GPPs where people have individual contracts  with Fidelity. The schemes are reported on by trustees who produce their own VFM assessments.

This may account for some very confusing messaging in the early part of the report. The first half of the report deals with guidance to members as to what to do.

The “rules of thumb” that appear at the front of the report appear to have been dropped in from another context.  I was left asking 7x what? , 13% of what? Why 35%?

If this document is trying to help savers, it needs to be a lot more precise.

Kim Nash has been chair since 2015 and the Fidelity IGC is now a stable and experienced unit. This shows in the report’s  assured tone and consistency but the content looks like it’s been cut from elsewhere and de-contextualised.

These infelicities  are unfortunate but particularly unfortunate as they precede the first section of the report that focuses entirely on communications.

It is not until page 11 of a  page report that we get away from the “customer experience” and move on to value and money.

The placid contented tone of the report is appropriate for a customer base who by and large will do very well out of pensions. But I think the messaging is lazy and this suggests a complacency which – even for well heeled Fidelity customers – is misplaced.

I’d like to see future reports be clearer to members that the IGC is not an independent trustee and that it negotiates with rather than reports to the “FIL Board”. I give the tone an amber – despite the report being well crafted.

VFM -Bland leading the blind

When people carry banners, they usually have something to say. The Fidelity report ends up saying very little, in a very nice way. See picture above.

There is a lack of bite about the VFM assessment, it’s  hard to engage with a report that seems semi-detached from the matter in hand.

This is the problem when IGCs are too corporately aligned, they really give themselves no space to speak their minds.

Last year, I commented on the extremely high transaction costs in the  Fidelity default fund strategy. Last year’s IGC report did not pick up on this but I’m glad to see that Fidelity have changed the strategy to that the transaction costs paid by those who make no choice, is relatively low cost.

It will be interesting to see whether the revised strategy will deliver as much value as before, my suspicion is that it will.

I would like the VFM assessment to be telling us what value members were getting for the 0.39% transaction costs they were paying but the report is silent on fund performance.

For all the talk of participating in  benchmarking surveys, the only information given to policyholders is this table.

Not only are the returns gross of the overt charges (see below) but they have no context – we simply aren’t being told what value policyholders are getting for all that money they are paying.

No sooner have we started talking about investment and costs than we move on to talking about Fidelity’s future plans for web and phone apps.

There really is no proper discussion of  VFM in this report and the reader will be left wondering whether they really can leave Fidelity to it.

Bland assurances from an IGC are not enough. The VFM assessment in this report is simply not there, what is there is a report on engagement tools. For its lack of disclosed analysis of what is actually happening in Fidelity funds, I give the VFM assessment an amber. That number could have been a red other than the IGCs previous reports lead me to believe that a more thorough analysis has been carried out

Simple and transparent? Or simply ineffective?

The IGC believes that Fidelity’s fund charges are simple and transparent in structure, as all explicit costs are included within the ‘Total Expense Ratio’, quoted to you in the Investment Choices Guide and the Fund Factsheets. Fidelity’s fund charges cover the cost of investing your money as well as administration and communication services provided by Fidelity. All charge cap requirements have been met over the year.

This is not simple or transparent. The total cost of owning a Fidelity fund is the Total Expense Ratio  plus the transaction costs. The transaction costs are still weigh above industry norms – despite having fallen from last year’s analysis.

It is quite likely that some customers last year – paid more than the charge cap in terms of total cost of ownership. We will not know because the report glosses all this over.

Once more the reader is frustrated as they simply can’t get engaged with the real issues. Once again I feel that Kim Nash and her team know a lot more than they are disclosing in this report and for its lack of disclosure , I cannot award the report a green so I report it an amber.

As elsewhere, I feel confused and frustrated , concerned that the IGC is acting as a benevolent paternalist rather than the policyholder’s advocate.

Fidelity IGC needs to be clearer as do Fidelity

I have seen a benevolent seeming life company go wrong, it was called Equitable Life. It went wrong because it was trusted too much and allowed to get away with it. I don’t think that Fidelity is an Equitable Life but I do think they are allowed to get away with too much by the IGC.

The confusion between members and policyholders, the lack of precision in the rules of thumb, the failure to engage with high transaction costs, the lack of context in the analysis of performance – all add up to a lack of scrutiny,

The remarks from Fidelity quoted at the top of this report, suggest that Fidelity don’t really understand why they have an IGC. That is a very dangerous state of affairs and I hope that Fidelity and their IGC pick up on this.