Why isn’t TPR putting the customer first with its most recent RFP?
When we judge the Money Marketing rewards, in every interview I always ask financial services advisors and product providers “How customer-centric is your proposition?” For me, this is the most important aspect of treating clients fairly.
A discussion paper released this month by TPR discussing value for money in defined contribution pensions while accumulating does not seem to put the client first. TPR wants consistent value-for-money assessments, focusing on metrics to allow meaningful comparisons between programs. It was an unusual piece of paper to read. I’m such a nerd that I read many FCA articles a year and the tone of the TPR discussion paper makes me think it was written for DB plan administrators in the 1990s.
Little mention was made of the value of the financial advice provided to the pension policyholder in the discussion paper. As readers know, financial advice almost always works better for clients than do-it-yourself investments. Every pension client is different with different risk appetite, aspirations and knowledge. Some enjoy regular two-hour meetings with a financial advisor so they can understand all the options, others find seeing a financial advisor as painful as visiting their dentist. Some customers collect stacks of financial services documents in a carry bag, while others prefer paperless apps with instant reviews.
Financial planning for retirement rarely varies from person to person.
The issue of charges on defined contribution pensions has been in the spotlight for years and expensive legacy funds are slowly coming under reasonable charges. The 2020 DWP survey found that for defined contribution pensions, the average charge is 0.48% per year, which is well below the ceiling of 0.75%. It is folly to relax the 0.75% cap on the default funds of smaller DC funds from October to give fund managers the freedom to invest in illiquid funds. The fee cap ensures that fees do not erode earnings and that investments in illiquid assets – aka Woodfood – are not invested, as they can be extremely risky.
I sincerely believe that investment performance is the most important issue in long-term investing. Nest pension plan funds did not meet annual performance benchmarks in 2019/20, so Nest’s fees aren’t as big as low investment returns. Negative returns due to poor performance are the main concern of clients.
The majority of financial services customer service is now based on the functionality of an app where chat bots provide advice instantly, and new retirement policies are available within hours.
This TPR discussion paper does not cover the cost versus value advantages of providing client specific financial advice, nor the technological advancements which both provide better pension in terms of accumulation, communication and outcome outcomes. customer satisfaction.
Kim North is Managing Director of Technology & Technical