“Some investors are not well placed to find better value for themselves, and can be relatively insensitive to the price of asset management services”
– Financial Conduct Authority: PS18/8 – April 2018
The “Value for Money” term, adopted by the UK regulators and placed on to Independent Governance Committees (IGCs) for workplace pensions, has been kicked into the long grass for the purposes of the FCA’s Asset Management Market Study (AMMS) remediation for authorised fund managers, at the behest of the industry. Instead, the term “Assessment of Value” has been introduced to make it clearer to investors that consideration is being given to other factors, such as service quality and value provided, and, quite rightly, not just the price paid.
To some this is a moot point, it doesn’t matter whether the term is called an “Assessment of Value” (AoV) or “Value for Money” (VfM), both are relatively subjective and will mean different things to different share class holders and investors. It is a shame, however, that there are now two terms (instead of the one) for what could easily be the same thing. It will fall to the underlying investor to make sense of it all – a state of affairs that smacks of hope over experience, one fears.
The FCA having mandated what the AoV principles are, it failed to mandate how a fund board should report their findings. And this is where it could get rather confusing, even messy, for the investor and for those who are responsible for monitoring how the new regulations are working. Meanwhile other observers and interested parties, Mercers, for instance, have proposed a variety of approaches to determine that elusive ‘value’.
Assessment of Value is going to be a key discussion point at the inaugural UK Fund Boards Senior Managers Roundtable on the 4th of October.
Where Does This Leave Investors?
Investors need an ongoing consistent AoV reporting framework across all their pooled fund holdings, and not just a subset, to be able to properly engage with the initiative and make rational comparisons and well-informed investment decisions. This is especially pertinent given some AoV principles are quantitative whilst others are qualitative. Different fund boards may also use their own individual methodology for evaluating qualitative AoV principles. Are there too many variables here? The possibility of manipulation and inconsistency looks great.
Thus, imagine the conundrum an investor faces should they hold the same fund in their workplace pension and as part of their lifetime savings. They could, in theory, face receiving a fund’s annual report with an AoV based on one set of principles that states one thing; only to find that the IGC of their workplace pension has given the same fund another rating based on another set of principles – Value for Money principles, that is. Confusing – it feels like that!
Whether a professional or private fund investor, this certainly won’t help in engaging those who struggle most with understanding their pensions and lifetime savings.
Sunil Chadda is an Advisory Board member of the APFI
JB Beckett is APFI’s UK Director
This blogpost is an extract from a paper entitled The Guns of Naverone – “Assessment of Value” – New actors begin the climb, and can be viewed here