Oliver Jaegemann says the pension industry's investment in technology and innovation have fallen off a cliff
Technological change has transformed our lives in the 21st century. Relationships between service providers and their consumers (think Amazon, Uber, etc.) have been characterised by a seismic shift in both the quality and value of services to the consumer, all made possible by the digital revolution.
Yet the relationships between asset owners, managers and intermediaries has so far been, to a great extent, a land that technology forgot.
These relationships are long established and deeply entrenched, and the danger of any such relationship is of inertia, even complacency. Pension funds, even in 2018, are much more likely to have assets invested in cutting edge technology than to actually benefit from such technology in the delivery of the services they use.
The particular disconnect that strikes me is the speed at which digital evolution is adopted when it comes to making money, be it absolute return, liability hedging or otherwise, compared with the industry's lackadaisical approach to investing in the investor experience. Of course, making money is critical for any successful investment business, but it seems that where there is a return to be made, budgets are unlimited.
However, when we look at the other side of the coin - the investor experience - our industry's investment and innovation seem to have fallen off a cliff. For institutional investors, for example, not only does it take weeks to implement any decision due to labyrinthine paper trails, but the costs that need to be paid out to lawyers, consultants, and operational due diligence experts are eyewatering.
And it's no different for managers either - they need hordes of staff to prepare client reporting, to find new business and to service their existing clients. The time and money that is wasted by all parties are astronomical. And most importantly this is impacting the end investor and their retirement.
Part of the problem has been the opacity surrounding the fees paid by pension funds, particularly in the form of fees paid to a range of third parties, who take significant amounts out of the value chain, to the detriment of the end consumer.
There is, however, evidence that asset owners and managers, squeezed by the combined burden of escalating costs, lower interest rates and mounting administration and regulatory requirements, are now waking up to technology as a vehicle for positive change. Indeed, the need for innovation and disruption is becoming increasingly apparent across the asset management industry each day.
I think the industry is missing a trick by focusing innovation and technology only in one direction - thereby continuing with an antiquated system simply because "it's what we've always done". This is where technology can really make a difference. The right technology can streamline the process, reduce resource duplication and deliver cost and time benefits to both sides of the market. It can also overwhelmingly improve the entire experience.
The same consumer/provider dynamic that has driven the growth of online retailers or retail banking is also finally beginning to make inroads into the relationship between asset owners and the managers who invest their funds.
The standardisation and centralisation of the investment vehicles used by investors and managers, using innovative technology, will prove to be a landmark change for the industry, bringing greater transparency and improved efficiency to the investment process.
Above all, it will deliver significant cost savings to pension funds and their members. Our hope is that the benefits that technological change has already brought to consumers in other sectors of the economy, will soon be a reality for pension funds and their members.
Oliver Jaegemann is global head of AMX
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment says today.
Technology platform PensionSync has partnered with quantum employment pioneer My Digital to help contractors and employers manage pensions as more workers do temporary work for multiple firms.
Capita Pensions has partnered with data technology solutions firm Intellica to tackle the GMP equalisation challenges facing pension schemes.
The Hewlett Packard Retirement Benefit Plan has reappointed EQ Paymaster as its third-party administrator (TPA) for five years.
Schemes and their administrators have rightly received much praise for ensuring that pensions have continued to be paid in full and on time during an unprecedented period of disruption.