Let’s be clear what this headline is saying and what it’s not saying.
What it is saying.
The headline, based on research by Chris Sier and Clearglass, tells us that UK pension funds are over-paying for investment management. That’s because of the lack of transparency in the market for funds and asset management – detailed in the article.
What it is not saying
It is not saying that UK consumers are over-paying for the funds we use in our workplace pension (where we take that risk). We pay what the price-list offered by our pension arrangements tells us we are paying and if we want to dive deep into the true cost of the investment management, we can consult our IGC and Trustee Chair statements.
But consumers always end up paying in the end
The price that institutional investors such as Trustees and insurers pay for fund and asset management is determined not by the buyer but by the seller, that’s Sier’s point. Because of a lack of information, most critically about the “going rate” , buyers pay too much and get too little.
It is wholly probable that this poor purchasing is passed on in the price that consumers pay, because most institutions work to fixed margins – including “no margin” and so price up inefficiencies in the charges we pay for our workplace or self-invested pensions. Where we are not taking the risk, we feel the hit indirectly, because the £2bn in overpaid fees is sitting in the pockets of fund and asset managers and not providing security to our pensions.
Must do better
Faced with the sophistication of those who offer funds and asset management to consumers . consumers will alway be on the wrong side of the argument. We lack the purchasing power, the negotiating skills and the energy to cut deals and are therfor vulnerable.
The consumer duty is there to make sure that providers do not take advantage of our vulnerability. To even things up we have our champions. These are the regulators in the first instance and our fiduciary agents in the second. It is the job of IGCs , GAAs and Trustees to make sure that the invesment management agreements negotiated with fund and asset managers are fair and reasonable.
But it looks from Chris Sier’s analyss that there is still much to do. Since the majority of the agreements with fund managers involve intermediaries – investment consultants, platforms and custodians, there should be expertise available to ensure that the price paid for the service offered represents vulue for money.
But we hear from Chris Sier that what should be a transparent market, can be anything but. What is needed is better information on what prices should be and that means accessing. He has the data and there should be a clear glass to what is going on
“Competition is not working,” says Chris “Almost every deal between a fund manager and a pension scheme is different. Each scheme gets its own ‘special’ price and the omertà of ‘don’t tell anyone else about the deal you have or else’ has existed forever.”
ClearGlass estimated that only a quarter of investors were receiving good value for money when they compared their fees with both ongoing charges and median net returns over five years.
Isn’t it time that all the intermediaries, not just ClearGlass, rallied round to empower the buy-side. We might lose a few client conferences along the way, but that may be the price you have to pay to get value for money.
Dr Chris Sier
