First published in Engaged Investor Online, 25 August 2015
Disclosure rules are leaving trustees unable to communicate effectively with members, says Richard Butcher, independent trustee and managing director of PTL.
Many moons ago, in the early years of my career, my boss at the time set me the task of designing a benefit statement for one of the defined contribution pension schemes that we administered. This was the sort of work I really took pleasure from: design and language – two skills I thought I had and that I enjoyed using.
I started the job by setting out a basic design that I thought ticked the boxes, then, without having access to the client (I was far too junior), I ran it by some of the back office staff – those not exposed to pensions every day - to test some of the ideas and language. Final tweaks were made and then the whole lot was presented to the boss by the proud worker.
She took one look at it and handed it back to me; “Richard, have you come across the disclosure of info regs?” I shook my head, confidence draining away; “Go take a look” she said.
The benefit statements we eventually used was, I thought, inferior in appearance and appeal, albeit compliant.
It’s the way with so much of the output of the pensions industry: why say something simply and effectively, when instead you can demonstrate that you’re in the know with industry jargon, backed by complex acronyms, risk warnings, alternatives and pre-approved required statements: “the value of investments ….”, “your home may be at risk …” .
To be fair, this isn’t entirely the industry’s fault. More often than not we are simply trying to comply with the disclosure regulations or regulatory rules.
Also, to be fair, the regulators aren’t entirely at fault either. Over the years I’ve found they start at a sensible place buying into the principle that “lots of communication isn’t necessarily good communication”, it’s just that it all then drifts away – becoming far more complex.
You might argue that it’s not what we say but how we execute that matters. This might be a costly mistake.
At a trustee board a few months ago one of my lay trustees voted against using a diversified growth fund as he said he didn’t understand it. I explained to him that it was broadly similar to the balanced managed fund we had been investing in 15 years ago. He changed his vote.
If our overly complex and clubby language and the length of what we produce is a barrier to a relatively sophisticated trustee, imagine how much of a barrier it is to the average member. This isn’t meant to patronise, it’s a statement of reality.
How many of us have put a utility statement to one side, simply because it’s too much like hard work to read? Your utility firm, in sending that statement, failed to communicate, thus it has also failed to engage, much less to educate. If a pension, as a saving concept, is to thrive these are the things we need to do.
Is there an alternative? Is there a better way? Oh yes. One of my friends from the NAPF, sadly retiring from DC council this October, Ian Fairweather made a suggestion that we should abolish disclosure and introduce a requirement for trustees to communicate effectively.
I could live with that.