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Game changer

Genuine measurement of performance in defined contribution pensions has been thin on the ground. But as auto-enrolment plays out it will shoot up the agenda, putting the value for money of corporate IFAs and employee benefit consultancies under scrutiny. Clients, whether employers or employees, will increasingly ask those charging them for expertise in pensions what they are paying for.

There are a few barometers of the value of advisory services. In the IFA market there is the Adviser Fund Index, which reflects the actual portfolio recommendations of leading IFA firms. But in the DC sector, performance has rarely been clearly expressed, if at all, and many schemes are unable to give a single figure for the individual pension saver’s rate of return over the year.

However, data analytics firm DCisions is now shining a light on the performance of pension consultancies. Its latest report, Calibrating DC Outcomes, runs the rule over performance outcomes for 1.2 million members of DC schemes and compares specific modern default strategies.

Its numbers do not yet reflect a five-year cycle – DCisions readily admits it is not yet a complete picture – but its data reveals that over three years, the majority of these modern default strategies are achieving returns above the average achieved by investors with a similar risk approach. It suggests progress is being made in default funds.

Crucially, this shows that DCisions, or anyone else with a similarly robust sample of data, could, if they wanted, rank the performance of EBCs and corporate IFAs in terms of the value for money they have delivered to their members.

Publishing adviser-specific data would be commercial suicide for any private analytics company holding this information as they would soon find nobody prepared to deal with them. But that is not to say such an outcome could not happen. In fact, this is precisely what the Australian Government is doing.

Advisers are probably sick of hearing that what happens in Australia will happen in the UK but the country that introduced compulsion two decades ago is now introducing a level of transparency that would make Which? swoon.

The Australian regulator holds every bit of data on all the pension funds in the country. Until now it has been restricted by privacy rules from publishing what outcomes have been achieved and which costs have impacted them. But once the current set of reforms are pushed through, it will publish detailed lists of costs on all its pension schemes and their effect on returns. These will include advisory, admin and fund management costs. It will also include legal and custodian costs and dealing charges – factors not in our AMCs.

Some time in the next two years, league tables of performance for pension schemes will be published, revealing the cost of different advisory and investment strategies and their relative levels of success – dynamite for those getting it right and those getting it wrong.

The architects of these reforms expect schemes, firms and employers to start looking for more efficient models, for investment strategy, delivering advice or administration, before the numbers are published.

We may think it will not happen here but auto-enrolment is a game-changer as far as the Government is concerned. Firms doing a good job should have nothing to fear as an exercise in transparency such as this would highlight best practice.

John Greenwood is editor of Corporate Adviser


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