Expert: William Marshall, Chief Investment Officer, Hymans Robertson Investment Services LLP, Facilitator: Martyn Laverick, Catalyst Partners
Headlines:
- Value for Money (VfM) extends beyond costs, encompassing performance, sustainability, and alignment with client needs.
- Scope for Retail investors to learn from institutional regulations, given the latter’s more prescriptive value for money regulation.
- Technology and collaboration are key enablers in enhancing VfM while addressing evolving client expectations and sustainability goals.
Discussion points:
Introduction to Value for Money
The session began with an overview of Value for Money (VfM) in investment solutions, emphasizing that it is a multifaceted concept involving more than just cost. Insights from institutional experiences, particularly within Defined Contribution (DC) pensions, were referenced to inform retail investment practices.
Defining Value for Money and Regulatory Context
VfM includes cost-efficiency, client outcomes, and alignment with strategic goals. Regulatory developments have placed growing emphasis on value statements and performance disclosures, particularly in the DC pension space. Recent guidance encourages firms to design bespoke VfM frameworks that align with evolving expectations in the market.
Trends in Investment Costs
A notable decrease in the Ongoing Charges Figure (OCF) over the past four years was observed, driven by:
- Price reductions by asset managers.
- A shift towards passive investments, reflecting market dynamics and an increasing focus on cost-awareness.
Institutional and Retail Approaches to VfM
Institutional approaches, particularly in DC pensions, often involve prescriptive regulations and detailed performance reporting. These practices were compared to the more flexible frameworks currently seen in the retail markets, providing insights into potential areas for alignment and improvement.
Investment Strategies for Delivering Value
- Alternative Equity Allocations: Strategies designed to improve outcomes while managing costs effectively.
- Factor-Based Investing: Focused on leveraging specific return drivers, such as value or momentum, while avoiding unintended market concentration risks inherent in traditional passive strategies.
Sustainable Investing and ESG
The introduction of Sustainable Disclosure Requirements (SDR) has heightened the focus on environmental Social and Governance (“ESG”) integration in investment strategies. However, education and accessibility remain challenges in making ESG considerations more approachable.
Retirement Solutions and Technology
Retirement-specific portfolios are being developed to address considerations such as increased regulation and an over reliance on averages e.g. in terms of longevity and /or future returns. Technology tools that enhance decision-making and improve customer experiences are seen as essential for delivering VfM in retirement planning.
Collaboration and Industry Trends
The industry is witnessing a shift towards collaboration and strategic partnerships, allowing firms to:
- Leverage specialised expertise.
- Expand service offerings.
- Balance in-house capabilities with outsourcing to enhance efficiency and improve client outcomes.
Key takeaways:
- Regulatory Frameworks: Firms should explore and incorporate insights from recent regulatory publications on VfM frameworks into their practices.
- Investment Cost Analysis: It is important to analyse the factors driving the decrease in OCF, considering pricing trends and shifts in investment preferences.
- Adopt Institutional Practices: Retail VfM assessments should be aligned with best practices observed in the institutional sector.
- Sustainability Integration: Develop a strong understanding of SDR and what it means for your investment business.
- Retirement Solutions: Firms should develop or refine retirement-specific investment solutions, taking into account the range of projected future returns and longevity expectations.
- Leverage Technology: Evaluate and implement tools that support sustainable income planning and enhance client experiences.
- Foster Collaboration: Identify potential strategic partnerships to improve service offerings and operational efficiency, in line with industry trends.
