Julius Pursaill
No sooner have I published a blog announcing that AgeWage is embarking on research on how lifestyle has actually done, than I read a post in Professional Pensions from Julius Pursaill explaining how a master trust he advises is going to solve the problems of the pension lumpen with technology.
Julius view is that the key to making lifestyling work is communication and that schemes that don’t communicate but adopt a “one lifestyle suits all” strategy are failing their members. He bases his arguments on his experience – he has been chair of the RBS DC pension scheme and on the governance committee of a contract based DC plan run by Heineken.
His current project – Cushon – sprung out of Smarterly, Ben Pollard’s fintech which employs nudge technology to get the pension lumpen into financial fitness through just these kind of nudges. I am not sure whether the 60% of DC members, Julius refers to , includes the recently acquired Salvus master trust but if it does, then this is quite an achievement. Julius has told me Cushon has ambitions to match Smart and move into the premier league of auto-enrolment master trusts and it will be interesting to see whether that 60% figure can be maintained or even improved upon as increased membership plans are realised.
In SatNav we trust?
I live in one of those areas of London where the roads are constantly being closed, either to install new pipes or to reduce traffic congestion. SatNavs can’t keep up and the Ubers are constantly forced into U-turns as their exasperated drivers find their SatNavs letting them down.
Infact the current road system in my part of London is now pretty well unusable without up to the minute guidance
A reliance on technology is maintained over time , not just by the need for it, but trust in it. It is possible to see many of the Uber drivers giving up for lack of custom and switching to electric bikes and delivering me my meals.
People setting their financial SatNavs on – as Julius want them to are going to have one of two experiences. This is the experience that Julius and Cushon would like to happen
This is a fine vision and it might yet happen. However, expecting members who have limited time, interest and experience to program the financial satnav to arrive at their destination quicker , more directly or at all is a big expectation. It asks for a lot of attention and for members to make detailed trade-offs. Members are going to have to trust not just in the satnav for the correct nudges, but in their own capacity to program it with their requirements.
And the extra challenge which Julius has not addressed is one of reporting. A satnav tells you how you are doing – how far you’ve come and how far you’ve got to go. It assumes that you aren’t going to run out of petrol, don’t have an accident and don’t need to pull over and feed the family a KFC. But SatNav recalibrates when each of these random setbacks occurs and gets you back on course.
The system that Cushon will need to develop over time will have to do all these things for people and a whole lot more.
I am not saying it cannot be done, Julius will show me a bunch of stochastic models that can be deployed to do this. But there comes a time when the Uber driver packs it in and goes off and plays with other means of transport, disillusioned with the guidance from the SatNav and with the root cause of his dissatisfaction – a wrecked traffic system.
Satnav’s are only as good as the data they receive and ultimately only as good as the road systems they navigate. The game changer for the passengers is that they have other choices than Uber. It may well be that the complex system of multiple lifestyles and multiple pathways becomes as impenetrable as the City of London road system and a radically simpler alternative appears.
But till then, Cushon and Julius are probably as close to a mass market answer as anyone- and Uber and its SatNav remains our best bet – for all its frustrations.
Footnote – wisdom of the crowd or exploiting the herd?
Some people question “default strategies” and recommend individual solutions as opportunities to avoid herd mentality. I think about this a lot and have enjoyed discussing this with Julius and Con Keating recently, Con’s contribution has to point me to academic research.
This is an extract from a paper by Thomas M. Idzorek1, Paul D. Kaplan, and Roger G. Ibbotson entitled “The Popularity Asset Pricing Model”. It suggests that any default will be sub-optimal, because it is designed to be popular. We pay a price for not being able to beat the herd , but the paper suggests that staying in the herd also has its benefits. For most of us, it’s wise to be in the crowd,
Investors have heterogeneous expectations and popularity preferences can affect security prices. As a result, investors form portfolios reflecting their forecasts and preferences / tastes.
Popularity is driven by the collective wisdom—or perhaps not-so-wise collective opinion and preferences—of the crowd / investors so going against the collective tastes that drive popularity is inherently contrarian and an example of how some may attempt to profit from investors with tastes.
If you want to understand this version of the CAPM , here’s a long and interesting video from the writers of the paper
There are two sources of cost that members bear, inherent in Lifestyling.
The first is the potential forgone return that derives from members not being fully exposed to a high return asset class (equities) as derisking (into whatever lower risk asset mix the trustees have decided upon) takes effect in the run up to “expected” benefit vesting.
Trustees take decisions about the quantum and timing of risk exposure based on complex trade offs around the range of possible returns for different cohorts of members and uncertainty around the timing and type of benefits the member is likely to take.
As Con Keating pithily observes, the size of this forgone return that materialises when benefits are taken, represents the cost the member has borne for decisions the trustee has taken about risk on their behalf.
The second cost to members flows from the cost of trading between asset classes. This is an area where providers can help to minimise costs and improve outcomes by unit matching wherever possible between different members, benefiting both the seller (the older DC member) and the buyer (the younger member, still buying equities).
It must be right that trustees understand the impact of both these sources of cost, by measuring ex post member outcomes in the way AgeWage has pioneered. Understanding how well decisions made by the trustee about risk have turned out can help them review the ex ante decisions trustees have to take about the risks members bear.
Turning to the questions you raise in your subsequent post about Cushon’s ability to use technology to engage with members, the 60% App driven member engagement figure relates to schemes that have been launched direct onto Cushon tech (we are in the process of porting the Salvus (now Cushon) MasterTrust onto our technology). By using straightforward behavioural techniques and push messaging, that figure has climbed rapidly to 80% after just a few months. This level of engagement offers transformational capacity to create tailored lifestyle strategies for our members, based on their own risk preferences.
Hello Henry,
Good Luck to Mr Pursaill, I hope he succeeds in obtaining his desire.
However, in regard to his opening remark…But those are usually based on letters which are easy to ignore and phone calls that are intrusive or salesy.
I don’t know what Mr Pursaill’s email box is like but mine is stuffed with emails I don’t want and the phone permanently on ‘Answer’ because of the ‘cold calling’ that is technically against the law. It has taken Lockdown to reduce the amount of wasted advertising arriving through my letter-box. It has always been the bane of any form of media communication but does at least give work to those who produce it.
Kind regards,
Tim Simpson