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The long and winding road to transparency

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By Christopher Sier

Anyone who has worked in or around the pensions and investment industry over the last few decades will know that debate over cost transparency has been a recurring and increasingly hot topic over this time.

Often contentious and not without its colourful moments, years of denial led to unfortunate scalps being taken at trade bodies, repeated reviews by regulators home and abroad, and growing discomfort in Brussels and even Westminster as the truth about hidden costs became too clear and too significant to be swept under even the plushest of carpets.

As many readers will know I have been actively campaigning for cost transparency for more than 11 years now. And it is with not a little sense of achievement that the long and winding road to transparency is finally getting there.

When the FCA set up the IDWG and asked me to chair it, I was of course delighted, but knew the battle was far from won at that point. Never one to shirk from a challenge and inspired to seize this crucial moment, we set about populating the Group with the right people. Together we put our minds to designing the new cost disclosure templates that are the key mechanism needed to finally achieve the transparency needed.

That task was completed last year and approved by the FCA as the right way forward. The Cost Transparency Initiative (CTI) was then established to oversee the introduction and adoption of the new templates the IDWG had designed.

Having been so heavily involved in getting this far — and all without taking a wage from anyone — I was personally determined to do all I could to help the templates have the optimum positive impact they could. I was aware that as use of the templates was not mandatory for asset managers, there was still potentially a barrier to adoption. I knew through my work at the IDWG that there were enlightened souls in pension schemes, consultancies and asset managers that were keen to adopt this new openness, but I also knew there were many who would find it complex and challenging and others that would resist because of what it would expose to their clients. 

Oiling the wheels of reforms

In response, my most recent step was to build a team and set up ‘ClearGlass Analytics’ to remove any lingering barriers and help smooth the way to the templates becoming a new major factor in open competition between asset managers to the benefit of pensions schemes and — most importantly — their members.

ClearGlass is the cost transparency tool for pension funds (and other asset owners. I need to keep reminding myself of this). The data we collect is on behalf of pension funds. The analytical dashboards we create are for pensions funds. Our clients are…pension funds. It seems logical therefore that the team should be speaking mostly to pension funds. But that really hasn’t been the case.

A market waiting to change

Since our soft launch in January, pension funds have come to find us — we haven’t had to chase clients. To be fair, we have been helped through word-of-mouth and the support of the consulting industry, who just get that pension funds need, want and deserve this data. As trusted advisors it is therefore incumbent on consultants to recommend a decent solution to supply this need, and that solution currently is ClearGlass. 

What I’m trying to say is that finding customers hasn’t been hard. It seems as though pension funds have been waiting a long time for transparency and we have burst the bubble of need.

We already have 32 pension clients with £100bn AUM after only three months.

But this leads to the consequential situation of needing to help asset managers understand why they should give data and how they should give it, and this is why we mostly speak to asset managers at the moment.

In a very short time, our helpdesk has learned the important technical skills of teaching asset managers how to complete the complex data templates that we use (the industry-standard IDWG/CTI templates, and also the LGPS templates). So far this is about 120 or so of the 1800 asset managers in the UK, but this will go up shortly as we not only have a very large pipeline of new pension fund clients in the UK but also strong demand from Europe.

Of course, every asset manager we help is one we don’t need to help again. At some point in the next few months we expect to stop meeting new managers and for demand for coaching and assistance from them will fall. In other words, most asset managers will be au fait with the data needs of their clients and will be able to complete templates without help and, hopefully, automatically.

Deniers turned advocates

We have been really pleased with the level of enthusiasm and keenness of the majority of asset managers to engage positively with us to make the quest for full transparency a reality. Some journalists I have talked to recently have been very surprised to hear of this cooperation and enthusiasm, probably given the opposite impression created earlier in the debates when denial was still the predominant reaction.

Having said this, it is true also that there are asset managers who are less keen (mainly because of perceived complexity and additional work), and some that are quite hostile to the new regime. It is talking to these managers that I spend most of my own time currently, helping them to see the danger and self-destruction they risk by trying to swim against this new tide of transparency.

Given this wide range of reactions to the new regime, and its relevance to the pension schemes and their advisers responsible for choosing the best asset managers for their needs, ClearGlass will shortly be naming those businesses that we have been most impressed by — in terms of their speed of response, the enthusiasm of their engagement and the effectiveness of their actions in adopting the new transparency. Watch this space!

Naming and faming

We hope this ‘naming and faming’ will help encourage more asset managers to see the upside of this brave new world and take the opportunity to increase their competitive advantage by doing so.

It is such a good thing that the majority behaviour we have seen is positive and committed to the new regime. This bodes really well for the positive impact that the FCA IDWG and the CTI will have on the operation of pensions schemes and the performance they get from their asset managers.

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