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Thursday, 1 December 2016
FCA report underestimates fund group inefficiencies, experts warn
The FCA has underestimated a number of inefficiencies in the asset management industry in its interim report on competition between fund groups, experts argue.
The FCA analysis shows profits at fund management firms are high when compared to other sectors.
The Financial Inclusion Centre director Mick McAteer says from a consumer perspective the FCA underestimates the impact poor fund group practice has on the end cost to the consumer.
He says: “In the active management sector there is [often] overtrading and payment of high bonuses, so they add unnecessary costs into the system, inflating operating costs, which then reduce the operating profits. So the inefficiency is even greater from a consumer perspective.”
McAteer also says the FCA “clearly” found it difficult to establish exactly how profitable funds and firms were, raising questions over whether funds' accounting systems are set up to work out the real costs for investors.
Fairer Finance managing director James Daley says the main inefficiency the FCA has overlooked is performance fees, which have not been considered a “massive” problem by the FCA so far, especially in the absolute return sector.
He says: “For an interim report it raises a lot of key issues but the question is will the final report follow through the remedies it is suggesting?
“These market studies are quite big occasions as once the FCA finishes this, then they'll put it to bed for a few years.
“If they leave some of the problems on the sidelines now then they'll miss that opportunity.”
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Wednesday, 30 November 2016
UK consumers think retirement finances are less important than European peers
UK consumers think money is less important for a good quality of life in retirement than their European peers, according to Chase de Vere research.
According to the research, 31 per cent of the UK respondents said economic resources were important for quality of life in retirement compared with 54 per cent in Germany, 51 per cent in France, 45 per cent in Switzerland and 58 per cent in Austria.
For under 65s, just 30 per cent of the UK respondents thought economic resources were important compared with 58 per cent in the same age group across Europe.
The report argues this as a concern in relation to encouraging young people to save and invest for their future.
39 per cent of UK respondents under 65 wanted to retire from work when they are as young as possible which Chase de Vere highlighted as a “clear disconnect” with not thinking finance was important in retirement.
The research also looked into people living longer and found that, on balance, respondents thought that increasing longevity was a problem rather than a benefit for society.
The generational divide
Younger respondents were more concerned about higher pension costs, while older people highlighted the need for a change in attitudes towards the elderly.
The research showed that more people in the UK than Europe thought individual retirees were responsible for meeting the cost of retirement. In the UK this was 57 per cent of those aged below 65 and 67 per cent of those aged over 65 while in Europe the figures were 48 per cent and 57 per cent, respectively.
The report says: “It is positive that those in the UK seem to have a better understanding that people are responsible for their own financial futures, although this could be because they have little confidence in the state pension system, their employers haven't done enough to engage them regarding workplace pensions and they aren't engaged with any other pensions either.”
Overall, Chase de Vere says there is a “rather depressing picture” where living longer is viewed negatively by society, and where people want a longer retirement but are not prepared to take to steps needed to retire when they want to.
The report says: “The message is very clear. We are likely to live for longer and so if we want to enjoy the benefits of an extended life we need to plan ahead. While it is imperative to keep both physically and mentally active, we should also be planning financially to ensure that we are more able to retire on our own terms and to live the life we want as we get older.”
One thousand UK consumers aged 35 and over took part in the research. The online survey followed similar research conducted with 1,265 people in Germany, France, Switzerland and Austria.
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Two men plead guilty to insider dealing on IT takeover
Two men have pleaded guilty to three counts of insider dealing for leaking information about a company takeover.
Guilty pleas were entered by Manjeet Mohal and Reshim Birk yesterday during their trial at the Central Criminal Court, following a case brought by the FCA.
Mohal worked in the finance team at IT giant Logica, and in May 2012 came into possession of inside information during takeover negotiations with Canadian IT services firm CGI.
He told Birk, his neighbour, about the proposed takeover deal. Birk then used the information to buy shares and options in Logica two days before the CGI takeover was announced. He made over £100,000 as a result of the trade.
The pair will be sentenced on 13 January.
No evidence was offered against a third defendant, Surinder Sappal.
FCA executive director of enforcement and market oversight Mark Steward says: “We are determined to do whatever is required to curb insider dealing and other market abuse to protect both the investing public and market integrity and we will continue to prosecute cases and hold wrongdoers accountable where there is sufficient cause.”
As part of the same investigation, former Logica senior manager Ryan Wilmott was previously sentenced to 10 months in prison for insider dealing and Kenneth Carver was fined £35,212 for dealing in Logica shares on the basis of inside information.
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Tuesday, 29 November 2016
Malcolm McLean: Simplify pensions once and for all
For almost the entire 20 years I have worked in pensions people have said the same thing: “Pensions are too complicated. I don't understand them. They need to be simpler.”
This inevitably leads on to statements like: “I can't be bothered with paying into a pension. I don't trust either the pensions industry or the government; they're out to rip you off. I'll handle my own money.”
I would like to think that after so many years of us banging on about the problem things would be improving a bit. However, it is probably getting worse.
National Pensions Awareness day came and went back in September, with no apparent impact on people's understanding of the subject, while the success of auto-enrolment so far seems to depend more on workers' inertia than any degree of engagement with their pensions.
And it is not just the general pubic. Earlier this year, Bank of England chief economist Andy Haldane said that even he was unable to understand pensions because the system is so complicated. What is more, new pensions minister Richard Harrington pointed out at a recent conference that, prior to taking up his role, he was not sure what he had by way of pension provision and how the various bits all fitted together.
Harrington went on to say that one of his key aims was to make pensions simpler and more easily understandable to the ordinary man and woman in the street.
I wish him well with that but, at the risk of sounding cynical, we have heard it more than once before. And it has not happened. At least not to an extent that would make a material difference.
The problem is we have let the system grow like Topsy, over a long period of time and in a totally uncontrolled way. Take tax as an example. There are hundreds, if not thousands, of pages of tax legislation on pensions that continue to expand at an alarming rate.
And to what end? How many consumers actually fully understand what tax relief is, how it works and how it benefits them in their pension saving? Why is there this apparent obsession on the part of the Treasury with constantly adjusting the allowances with ever more complicated processes for capping and restricting reliefs?
I would like to think that after so many years of us banging on about the problem things would be improving a bit. However, it is probably getting worse.
Coming together
I accept that, to some extent, we are prisoners of our past and simplifying pensions as though we are starting from scratch is not always possible. Bringing in changes often means you have to recognise and give effect to accrued rights that already exist, producing complex transitional arrangements such as those in place for the new “simpler” flat-rate state pension.
But does that mean pensions have to be so convoluted and confusing in all respects? The basic concept of a pensions saving plan is about putting money away during your working life to give yourself an income (or extra income) in your retirement years. It is hardly rocket science. But when you add in the question of tax reliefs and allowances, contribution rates, target date funds, salary sacrifice, default options, lifestyling plans and so on, it probably starts to sound to the consumer a bit like it could be.
Why can't the industry and the Government work together to find ways of radically simplifying the whole pension system for the benefit of everybody involved? We need simpler legislation, simpler scheme rules and simpler insurance products. But above all we need a desire to think and act in the best interests of the consumer at all times.
Alternatively, this could be given as a discrete task to a new Pension Commission, which could objectively examine the case for more simplification and make practical recommendations as to how it might be achieved.
And while we are at it, let's have a once-and-for-all purge on the gobbledegook language used. Expressions like “trivial commutation” and “uncrystallised fund pension lump sums” have to be consigned to the dustbin if we are ever going retain any credibility going forward.
Malcolm McLean is senior consultant at Barnett Waddingham
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