No tomorrow

Jo Cumbo broke the news that HSBC was winding up its master trust in the FT yesterday. The scoop was getting HSBC to make a statement to that affect, the market has known for some time.

HSBC confirmed “the unwinding of the HSBC Master Trust and its entities in the UK, subject to applicable legal and regulatory requirements” in a statement to the FT.

“Following an extensive review, this strategic direction has been taken to reallocate resources towards other priorities,” the bank added.

This is the right way for the story to break, I have not commented on this matter to date as the hope is that all the work that has been put into this project is not lost and that something can be salvaged.

The work that created the product has been carrying on since well before lock-down, indeed HSBC were the first  new master trust to receive authorization as part of TPR’s framework late in 2019.

By then, the member support services , developed in conjunction with fintech Abaka were in place, trust boards, admin and platform contracts awarded and funds and pricing available to the market. All that the master trust wanted were customers. Customers never came.

Over the intervening years, staff and trustees  came and went, it seemed that announcements on senior appointments were a staple for the pension press. . Companies House shows just how many professional trustees had been appointed, this was an over-governed entity.

But no one really knew what the value proposition was

In the last quarter of 2022, CEO Alison Hatcher broke cover and started promoting her vision for how her master trust could make a difference.

It was a fresh story and I reported on it. But even as I did, the twin threats of losing HSBC’s and TPR’s support were proving existential to the proposition. The past few months have seen HSBC’s master trust return from Brentford to Millwall, no-one loves it and no-one seems to care.

Even today – some pension experts know nothing about it.

Were the plans for a DC or DB Mastertrust?

— John Ralfe (@JohnRalfe1) May 17, 2023

Too late to the party?

In a bizarre case of one-in, one out – NatWest has entered the master trust market in the same month that HSBC has left it. I hear that the FCA has provided NatWest with authorization to own Cushon and this will be announced at the beginning of June. Cushon was the second new mastertrust to receive authorisation and that must be particularly galling to those associated with HSBC’s arrangement.

Clearly one high street bank feels it is in time to come to the market and bring with it the formidable influence over the companies it offers banking services to.

I very much doubt that NatWest will take a different view to HSBC about its staff scheme. The high street banks have committed huge amounts of resource to their occupational DC schemes with heavily subsidized  fund and administration charges , governance and member support.

But NatWest is buying something that HSBC could not build – momentum.

HSBC’s problem was that it never found a way to create momentum for its master trust and by the time it found out that brand and proposition don’t replace the comfort of joining other clients, it was too late.

The obvious strategies, discounting taking on parts of the staff scheme (a non-starter) was to buy out existing master trusts and seed the scheme. Since 2019 a great number of the 70 or so commercial entities existing prior to the master trust assurance framework, are now part of other master trusts. Some – such as Cushon and Smart – have purchased several. HSBC did not purchase one.

The bank’s corporate customers seem to have been approached and I understand that a prospect list has been maintained – but none were on-boarded.

Worst of all, the lack of momentum meant that the non-conflicted gatekeepers, Isio, Barnett Waddingham , LCP and a few others – were unhappy to recommend employers and trustees to move to HSBC.

Finally, the end of the staging process in 2018, meant that HSBC missed any of the deal flow resulting from new entrants to auto-enrolment.

These are the reasons why HSBC never took on a client.

Lessons to be learned

1. A strong covenant can be a curse as well as a boon. HSBC seem to have been the reason for customers to come and the reason none arrived. No bank maintains strategies for very long, you have a short window to exploit, and if you miss the window, you may find the door slammed shut
2. The market has a memory. HSBC Life had a pension proposition that it pulled prior to RDR and the staging  of auto-enrolment. This undoubtedly created doubt in many experienced people’s minds as to the sustainability of corporate support.
3. Build as you go. The huge investment in member support services made prior to authorization meant that doors did not open till the proposition was perfect. Others built their proposition around their clients not for future clients.
4. Choose your partners wisely. A platform from a rival workplace pension provider (Fidelity)  and appointing an advisor  that conflicted a potential gatekeeper, (Hymans Robertson) were not smart moves.
5. Be bold; For most of its time, we knew nothing of HSBC’s convictions, too timid to speak out, they were the silent partner – phrases like “financial well-being” and jargon like “solutions”  rendered the proposition “me too“. Where was the passion?

What now?

The vast majority of what has spent has been lost .What is left – effectively some code, procedures and the experience of Alison Hatcher and any other champion who remains, may be valuable to a new-entrant.

But there will need to be a better reason to enter than to “have a master trust”. There are opportunities, we have yet to create a master trust for the over 55s who want to spend rather than save. We have yet to explore what collectives can do to solve problems of living too long.

There is an opportunity in that market to invest differently, with longer time horizons and without constraints of price caps.

There is an opportunity to use Artificial Intelligence, which was at the heart of the support proposition proposed by Abaka at outset, to do really creative things for members.

There is an opportunity to use the distributive ledger to run a rules based record keeping system that ensures fairness using immutable processes.

All of these things are for the future, sadly the HSBC master trust – as previously authorised , has no tomorrow.