Taking someone else’s numbers for it. The shortcomings of AoVs.



I suffer from pension dreams, these wake me up at odd hours of the morning with questions that I cannot answer. This morning’s question was put to me by someone who bought a pension savings plan from me when I was starting out.

“How can I track how my plan is doing?”

It’s the same question as fund platforms are supposed to answer in Value Assessments and the answer I gave 35 years ago is not much different from the answer you can get from the Assessments of Value (AOV). You’ve got to take someone else’s numbers for it.

I have not read all the AOVs , but what I have read suggest that fund reporting assumes that an investor makes a single payment on a given day and takes his or her money back on a single day. These two days mark the beginning and end of the assessment and are determined on an arbitrary basis.

But for most people who save into funds, life is not that simple, money comes in through plans run on a monthly basis with top-ups paid at financial year end and withdrawals made to pay for certain capital expenditure or as regular income. The experienced performance for investors depends on factors that are not picked up in a simple point to point performance figure. The investor suffers the hidden spreads within a single swinging price and the out of market risks associated with inexact investment administration. The investor has to take chances on “sequential risk”, where lumps of money arrive or depart on the wrong or right day for investment or encashment.

As far as I can see, none of these risks is considered , let alone measured, by AoVs. The results of these AoVs remind me of the advertising for MPG figures before road-testing took into account concepts such as the “urban cycle”.  People want to know the MPG they are likely to get, not what can be got from driving on a frictionless track at a constant speed.

So why don’t we monitor experienced performance?

Historically the fund management industry sold through intermediaries (like me). I would point to the newspaper and say – “look at the Hambro Life funds”. And people would look in the newspaper and find something that might correspond to their fund and see 1, 3 and 5 year performance figures and have to work out whether they were in the right fund series and whether these funds were reporting gross or net of charges and then work out what charges were in the fund and what came out of the fund and….. people gave up.

If I saw the saver again , which was usually to try to induce a bigger contribution, I might be asked for an update on what had happened so far and I would whip out a “sales aid” which would show that the vast majority of funds under the management of Hambro Life were outperforming so that there was nothing to worry about.

But the reality was that if the saver asked for a current plan value , they were given two numbers, the first being the notional value of the plan if they didn’t want their money back and the latter being the encashment value.  Even with my poor maths, I could see that the encashment value rarely matched the contributions paid, meaning that the savings plan was paying someone else and not the saver.

This is an extreme example of a problem that still besets the financial services industry, We take  people’s money and then report on it using other people’s numbers.

And the reason is that the fund manager and the intermediary and the saver all have different agendas. Which is why we have platforms.

Fund platforms are there so that investors can see how their investments are doing, not how the funds they invest in are doing – or so I thought.


But this doesn’t seem to be the case. Instead of reporting on how the investors are doing , those who manage platforms and produce these Assessments of Value are still reporting on their assessment of the funds, which is very much like reporting on performance on a test track and not at all about the urban cycle.

How hard is it for vertically integrated platforms to report on experienced returns?

I ask this question of fund platforms and wealth managers because my understanding of modern technology is that it’s quite easy to work out the difference between the experienced return of the saver from the reported returns of the fund manager. You simply look at outcomes.

But when I talk with those who do try to road test funds properly they talk to me of abstract notions such as “model points” and of “charging assumptions” from which they create synthetic outcomes. The complicated models used by performance specialists do not capture the actual experience of savers but an artificial view of what is going on.

I know that many of the models that are out there are sophisticated and can determine ranges of synthetic outcomes based on all kinds of simulations. But they are not based on real life. They cannot capture the granularity of a savers experience nor create insights based on what has actually happened.

And I don’t understand why these models persist when the vertically integrated platform manager now has access not just to the inputs but to the outcomes and can see pretty well everything that is happening to the investment using the platform’s technology.

I just don’t get why some platforms cannot tell the investor what is going on with their money. And I don’t get why AoVs are based on simulations rather than experienced returns.

I am asking as an outsider – would any insider care to comment?

Transparency is a very difficult thing. It requires those offering it to be accountable for not just what has happened , but what is happening. Clearly transparency can’t stop fiascos like the implosion of the Woodford funds but it can make it clear to investors where things are going wrong and where right.

Historically we have fought shy of encouraging investors to take the short view . We tell investors to jump out of the aircraft and trust the parachute and typically the parachute opens. When it doesn’t there is a reserve chute – there are few fatalities.

But investors need to have confidence in the governance of their money, just as the parachutist needs trust in the safety equipment and no amount of jump simulations can compare with an inspection of the actual safety record.

It strikes me that with the technology at the disposal of fund platforms, telling investors how they are actually doing, rather than what their funds are doing , is a much better way of inspiring confidence.parachute


About henry tapper

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