From the blog: Following nine months of detailed work by the members of the Financial Conduct Authority’s Institutional Disclosure Working Group, new cost data templates will, for the first time, provide an industry-agreed, consistent approach to collecting this important information.
Schemes have long awaited access to a granular level of information on investment costs – they have never been able to easily obtain it before. This is no silver bullet that solves all the industry’s problems, but it is an essential step on the journey to assessing value for money.
Gathering data is one thing, but knowing what to do with it is another. It is important that we do not just drown schemes in data, so what should be done with it?
Schemes have long awaited access to a granular level of information on investment costs – they have never been able to easily obtain it before. This is no silver bullet that solves all the industry’s problems, but it is an essential step on the journey to assessing value for money.
Gathering data is one thing, but knowing what to do with it is another. It is important we that do not just drown schemes in data, so what should be done with it?
Trustees must demand assistance from their providers in turning the raw data into insights
Adapt granularity to suit the task
At the highest level, the data provides deeper insight into the true financial position of the scheme – trustees will know how much they are actually paying for services, meaning they are in a better position to judge whether they believe they are receiving good value from their direct providers.
It is also important to note that there is likely to be a range of other service providers that the scheme is ultimately paying for, such as an asset manager’s use of an external custodian in a pooled fund, which creates a drag on performance. Being able to distinguish each component cost is vital.
The summary template contains a costs overview supplemented by contextual information, such as mandate size or trading turnover.
This will offer a comprehensive overview, but the option exists for trustees to see all the underlying granular data that comprises the aggregate figures, if required.
This allows costs to be analysed in detail, which may highlight areas for further investigation.
Ask for help
Trustees must demand assistance from their providers in turning the raw data into insights – clear visualisation of large datasets makes it far easier to understand and identify areas for further investigation or draw out insights that may otherwise have been obscured.
Observing current trends and comparing their data against relevant peers should all be easier.
With an increasing focus on calculating and demonstrating value for money from the regulatory authorities, better data and new software tools can help schemes meet these reporting challenges.
Cost is only one factor in value
Collecting cost information is only the starting point, though – ideally, schemes should be seeking a holistic view of their position, setting costs in context with performance and risk.
All this information informs the scheme’s strategy development, allowing trustees to make better informed decisions on the composition and selection of investment products and managers.
Ultimately, it enhances the scheme’s governance framework and should increase the chances of delivering improved outcomes for scheme members.
Stewart Bevan is head of pensions product development at Simplitium and a member of the Institutional Disclosure Working Group
