UK – Major consulting firm Hewitt Bacon & Woodrow(HBW) has introduced the Fund Delivery Service enabling pension funds to choose investment funds from a wide range of managers, but on a basis that claims to avoid any conflicts of interests.
This is for defined contribution and smaller defined benefits plans as it gives them access to funds that they might not be able to otherwise. “The concept is to make available best of class to these funds,” says investment consultant Steven Vale at HBW.
“It is more like a funds supermarket than a manager of manager arrangement,” he says. The approach avoids the disadvantages of manager of manager products, where choice is limited to a rota of managers.
For a small DC scheme, the trustees are often only able to deal with one fund management group, says Vale, but this new service enables them to pick and choose their managers. “Few fund managers are good at investing in all asset classes.”
Practically any investment fund can be available through the service, except unauthorised funds. It is not limited to the tax exempt investment funds designed for pension funds. The tax aspects of investing in a taxed fund can be taken care off, he says.
The consultants have negotiated so far with 30 investment groups in the UK to make their funds available on a nil initial fee basis and with no minimum investment requirement, he says. A number of managers are not operating in the DC market at present are making their funds available to the service.
“All fees and costs are transparent,” says Vale. HWB will negotiate the level of management fees with the managers and if any reductions are achieved these are passed on in full to the pension funds. As some of the fee levels will be tiered to the total amount of assets coming through the service to particular managers, “pension funds will benefit from our buying power”, he says.
Since the consultants receive no fees or income from the managers, there is no conflict of interests, he claims. “We give genuinely impartial advice on which funds are most appropriate for each client’s individual circumstances.” HBW will charge for the advice it gives on its normal basis. It will advise trustees about setting up the range of funds including lifestyle strategies, and on selecting managers initially and then monitoring them on an ongoing basis. It will help trustees on DB plans to establish the strategic asset allocation strategy.
The service is available to all occupational fund arrangements, including director schemes, irrespective of size. It does not apply to stakeholder schemes or group personal pension arrangements. Funds can use HBW administration or their. “Several of the pension funds who have signed up for the service pre-launch, are using other administrators,” Vale points out.