50 shades of grey- LV= comments on the FSA platform paper

19 July 2012 | Retirement insight with Ray Chinn, Head of Pensions at LV=

So much has been written about the FSA platform paper over the couple of weeks I thought I’d try a different tack – hence the title above…

Before anyone gets too excited about the thought of some form of intellectual erotica I’ll own up – this really is about the platform paper, or more specifically about the research papers that accompanied it. I’ll also own up to the fact that I haven’t quite made it through the Deloitte Paper yet, not enough hours in the day, but the NMG paper on customer research is fascinating.

I can’t really do the research justice in this brief column, but let’s just say that from my perspective there is an overwhelming sense that many of the consumers interviewed really don’t have a clear view of what their platform (substitute fund supermarket or wrap as appropriate) is, what it does, or what it costs. So perhaps ‘50 shades of grey’ is appropriate – or maybe ‘50 shades of opacity’.

I can sense some hackles rising already on this one, so to provide some balance it is also clear that some of those interviewed don’t really care. They like what they are getting, it meets their needs and is affordable, and so what’s the issue?

For me the issue is – what if they did care? What the research seems to suggest is that some people, when presented with more information, are quite interested to find out what’s going on, some are even concerned that they might be being ripped off. But because they can’t see what’s going on they can’t actually tell!

Putting aside whether a ban on cash rebates is the right thing to do, and whether customers will actually benefit – which seems to be predicated on a view that fund managers will reduce their prices – then it seems to me that customers deserve to know a little bit more about where there investments are going.

50 shades of grey, and the opaqueness that this phrase conjures up is old school. Remember with profits? Fundamentally a great concept, but flawed because no-one except actuaries really knew what was going on. In these days of ‘does what it says on the tin’ then ‘a tin that does stuff’ is probably not the clearest of customer propositions.

This brings me to another recent paper published by the Centre for Policy Studies. In this paper, entitled ‘Put the saver first’, the author Michael Johnson puts forward a challenge to the pensions industry to help catalyse a true savings culture in the UK. Rather like the FSA platform paper, the CPS paper will have some supporters and some who are less complimentary. I will leave you to have a read and draw your own conclusions, but it seems to me that there is a theme developing here, illustrated by some words in the foreword from Baroness Hollis and Lord Flight:-

The key objective of this paper is to encourage the industry to bring about transformational change from within. By taking a risk, and challenging its own vested interests, it could boost its efficiency. Lower prices, and enhanced transparency, would lead to more business with more customers: a ‘win-win’. I’m sure when I get to reading through the Deloitte paper I’ll find lots of transparent clear models adopted by businesses in the platform space.

I’m also sure I’ll find some less transparent models. Also we shouldn’t forget that the platform paper is also suggesting that it may be necessary to read across the new rules to life companies and SIPP providers – so there’s no escape – as the execution only peeps found out.

So there you have it. 50 shades of grey is yesterday’s story. Tomorrow is all about transparency and clarity. Our challenge within the industry is to accept this and set about delivering it.

Ray Chinn Head of Pensions, LV=