As a PLSA Education Partner on data and custody governance, we were delighted to take part in a recent PLSA webinar on the CTI initiative. We’ve summarised our key takeaways below.
28 Apr 2020
The rise of CTI
The CTI framework was introduced in 2019 and it has subsequently become the pensions industry standard for collecting cost data. The framework involved extensive collaboration, including much input from the asset management community. It has also been extensively championed by the LGPS, which was an early adopter of the CTI template.
The CTI templates are built around a number core principles. These include consistency on cost comparisons across asset classes and managers, flexibility, so that information can be machine-readable (recognising the large volumes of data that are collected during the exercise), be available to everyone and, finally, they need to have compatibility with regulatory and other reporting frameworks.
During the webinar, it was noted that investment costs were only one part of the value for money assessment and trustees should be encouraged to consider all costs incurred by a pension scheme(total cost of ownership). As well as investment costs, they also involve, administrative costs, actuarial and consultants’ costs among other charges.
The webinar highlighted an interesting case study on the importance of cost transparency. Back in 2011, Railpen embarked on a transformation programme with a focus on value for money for its members. When Railpen conducted a full disclosure exercise, it discovered an additional £210 million in costs from its original estimate of £80m. This equated to 1.8% of the scheme’s total asset value. Since then, using CTI alongside its internal resources, it has saved at least a percentage point on this.
Education remains key
What’s clear is that the data collection phase of cost transparency is now widely accepted by the asset management community, and this phase of the process is now reasonably established. We are now moving into the next phase, which is promoting stronger understanding across trustee boards in the interpretation of the data and the insights it can bring in helping the decision making and governance process.
Many questions from the webinar delegates centred around how to take the data and create actionable insights that made it more meaningful to pension schemes. It was broadly recognised that in terms of education, there’s still more to be done. We believe that as more data is collected, there will naturally be more engagement from trustees and board members – ultimately, the numbers will talk.
Our perspective on the CTI
From our perspective, we believe that the industry has made tremendous progress over the last few years in terms of making the collection of cost data as painless as possible, and the CTI initiative has been critical to this. We’ve observed that pension schemes are incorporating cost transparency in much greater numbers. For example, since introducing our cost transparency and benchmarking service three years ago in the UK, we have collected data on 1,700 funds from over 200 asset managers, representing pension scheme assets over £225 billion (DB, DC and LGPS).
Finally - our tips to trustees
We’ve had considerable experience in using the CTI template as we collect costs on behalf of pension schemes of all shapes and sizes. The CTI template certainly brings a level of consistency to the data, but the process is still complex. What trustees need to consider is that one CTI template needs to be completed per asset manager – so if your scheme has funds or mandates represented by 20 managers, this requires the completion of 20 CTI templates. Once an asset manager has completed the template and sent it back, it’s best practice to ensure the data is validated to ensure you are not missing any costs or capturing any anomalies. All this information then needs to be integrated in one place so the cost transparency analysis can be completed at a scheme level.
We’ve also found that when presenting to trustee boards, we have no more than 30 to 40 minutes to convey meaningful cost information. We spend a lot of time talking through the results, explaining how the data was collected and providing a high-level snapshot of the total cost of ownership of running the scheme. What’s really important in this process is helping trustee boards interpret the cost information so they can make meaningful decisions. Collecting the data is just the beginning – knowing how to interpret the data and use it to drive discussions with asset managers and the scheme’s other service providers is the route to good governance.
Finally, building a regular flow of cost information year after year provides insights and better insights lead to good governance. Having one year’s worth of data is a great start, but the more data you have the better able you are to spot longer term trends. This is where the real value of cost analysis and reporting comes into its own.