Getting the maximum benefit from investment-only platforms

The webinar panel - which comprised Phoenix Corporate Investment Services head Jess Williams and relationship manager Nick Trinder, in addition to TPT Retirement Solutions DC director Philip Smith - looked at some of the ways in which investment-only platforms have supported defined benefit and defined contribution schemes as well as master trusts to address the challenges they face.

The panel, chaired by Professional Pensions editor Jonathan Stapleton, also talked about how platforms can provide access to new investment opportunities and meet the future needs of occupational pension schemes.

Listen to the webinar in full here.

How do you see investment-only platforms benefitting DC schemes and master trusts when compared to full service platforms? 

Jess Williams: Investment-only allows schemes to select the best-of-breed options. They are able to pick the most appropriate third-party administrator for what they need alongside the consultant and then alongside the platform. They can pick the best provider, and the commercialising of that ensures they can get the optimum terms across each of those value chains. 

What do you see as the key attributes of an investment platform which will determine success?

Jess Williams: If you're looking at the success of investment-only platforms, it is the ability to change, the ability to innovate. So, as we see new types of investment like the LTAF (Long-Term Asset Funds) coming through, for example, or the reporting required around sustainability, it's how we can help clients. It's that agility to support clients. It's also having strong relationships with a broad range of fund managers so that as and when clients need to, we can ensure we manage this for them. And finally, it's that ability to make changes for clients in a way that makes sure they are reducing risk wherever possible and mitigating cost. 

Nick, can you touch on the trends you're seeing from clients looking to update investments on your platform?

Nick Trinder: While we have clearly seen a movement into sustainable equity-based funds, increasingly clients are looking for similar solutions in the fixed interest space as well as with bond funds. But equally, they're looking at things like biodiversity, sustainable infrastructure, and increasingly we're seeing interest and beginning to implement solutions in the thematic fund space as well, primarily for self-select members. That will move slowly, and equally that discussion around illiquids is certainly gathering pace and we'd expect that to be not just a topic that's talked about in 12 months' time but potentially an area where we're implementing more solutions for clients.

Are you seeing a lot of schemes with, say, less than £1bn of assets that are electing to produce a TCFD report?

Jess Williams: We haven't had any that have gone yet because of the issue with accessing data. There is a concern around making sure they get the right data to support it. But we have certainly seen a number of clients that are now starting to discuss this with their advisers to think about how they might get ahead of it, particularly if the DWP is to broaden this into next year and beyond, to ensure that they are in a position to produce a report because of the desire to do so. 

So yes, we're starting to see more clients doing that. We haven't had any that have actually seen that through from beginning to end yet, but there are certainly clients that are looking at it. Schemes also do not want to just be seen to be doing the right thing but to actually do the right thing and show that through their reporting.

What transition methods are available to clients? And when potentially would you use them?

Nick Trinder: If we were to move assets from one platform to another but retain the same funds, we would look to re-register units. By re-registering units and taking care of all that legal work as well, we take all cost and risk off the table for clients. Similarly, if you were transitioning from perhaps one UK equity strategy to another where the holdings were fairly similar, we'd investigate an inter-DC transfer with the two managers concerned. Quite clearly, particularly with UK equities, there's a cost of stamp duty, commission and so forth. It's a costly business to sell one UK equity fund only for another fund's manager to buy broadly the same stock. Again, we take care of that legal paperwork. 

Yes, it would lengthen the transition, and yes, it would lead to a blackout period but at the same time it's about making that transaction cost-effective for members. They're predominantly the two we'd look at. 

There is also the use of cashflow rebalancing. If you've got a blended fund and want to increase the allocation of a particular underlying fund, if you've got good contribution flows going into that blended fund, then use the regular contributions to build up your allocations or reduce your allocations over time. Cashflow rebalancing is one that we'd always be mentioning to trustees and their consultants. 

Regarding long-term asset funds; what do you think are the key things to consider when platforms are looking at LTAF solutions?

Nick Trinder: As a platform, we've been talking to a number of major fund managers over a period of months as they've developed their solutions, talking through some of the operational requirements. And primarily there, we're looking at the frequency of dealing and similarly the method by which the fund would be priced as well. Clearly, we're not expecting daily pricing of those funds but how frequently will the assets be priced? Will they be priced on a forward pricing basis? And all that needs to be factored in, in terms of accepting those assets onto the platform. 

But by having those conversations, understanding how the funds work, we're clearly very confident that there'll be a number of solutions available to clients in the months ahead. 

Philip, how do you see the platform supporting you with some of the changes you're considering or the enhancements you're considering?

Philip Smith: The platform is going to be absolutely essential in terms of some of the approaches that we're intending to take around investment and different kinds of share classes that we're thinking about delivering. The other thing we have discussed is that it's quite a big regulatory year to come. As a master trust, we will be first in the line for TCFD reporting. It would otherwise be much harder to get to grips with that reporting without a platform to help us. It brings us a lot of operational advantages but also it really helps us in regulatory reporting and all the kind of (governance) stuff that we have to do. 

Can I ask each of you for your final thoughts?

Nick Trinder: It's been the speed of change that we've seen really over the past two years; whether this was accelerated by the pandemic in 2020 is unclear. But a lot of the solutions we've implemented this year for clients - and I'm looking at fund offerings, investment trusts, ETFs - some of these solutions didn't even exist three years ago. And here we are implementing them for clients and looking at the next thing on that sustainable journey. 

That same principle can equally apply to illiquid funds as well, and it will be very interesting to see what solutions are developed in that space and clearly how clients choose to use them for their own scheme members. 

Philip Smith: We are living in a world where the pace of change both in regulation and also DC investment is getting faster. The scale particularly of master trusts is building rapidly, with the cashflows coming in through auto-enrolment. And that's just going to generate more demand for more sophisticated solutions, greater regulatory demands, and greater needs for us to engage and talk to our members. 

Without a platform to work alongside us doing that, it would be really hard. 

Jess Williams: It's very telling that both Philip and Nick used the word change. Clearly, we've seen a lot of change this year and - obviously - it's going to continue into next year. For me, the point here is around how platforms could and should make that governance load lighter. We should be able to help you with that and take some of that heavy lifting. 

And that's about supporting clients and trustees and their advisers. That's so you can really concentrate on member engagement. This is going to be crucial going into next year, particularly with the continuation of the cost of living crisis and in the run-up to the introduction of the pensions dashboard. That's where really a lot of effort needs to be focused by clients and their advisers. It's really about how the platforms can help with that pace of change and deliver the innovation that schemes want for their members.

This webinar was held on 30 November 2022 in association with Phoenix Corporate Investment Services. Listen to the discussion in full here.