The Transparency Task Force

By: Andy Agathangelou

Introduction

The Transparency Task Force is a campaigning community dedicated to driving up the levels of transparency in financial services, right around the world. We believe that higher levels of transparency are a prerequisite for fairer, safer and more efficient markets delivering better value for money and better outcomes to the consumer.

Furthermore, because of the correlation between transparency and trustworthiness, we expect that our work will help to repair the self-inflicted reputational damage that the financial services sector has suffered for many years. The opacity problem is a festering sore on the face of financial services and it desperately needs to be treated. What’s the best treatment? – Transparency, or to put it another way:

‘Sunlight is the best disinfectant’

Our approach is collaborative, cooperative and consensus-based. We are striving for a win/win/win, whereby the consumer, market participants and the efficacy of governments’ policies around the world can all benefit as a direct result of the work that we do.

As such we believe that the Transparency Task Force is very neatly aligned with the Seven Pillars Institute for Global Finance and Ethics; indeed, the introductory telephone conversation I was fortunate to have had with Dr. Kara Tan Bhala on Tuesday 2^nd August was enlightening, encouraging and energising all at the same time! It was a highly memorable ‘phone call for me – it was like finding a soul-mate.

I think that the Institute’s quest to develop a comprehensive theory of finance that blends together mathematical rigor from modern finance theory, human and group psychology from behavioural finance and enlightened thinking based on sound moral principles is highly appealing. Indeed, developing a workable finance theory that unifies the three features of mathematics, psychology, and ethics is a noble cause and I hope the Transparency Task Force can make a worthwhile contribution in some way. I am truly excited about what Seven Pillars Institute is and does and I hope the Transparency Task Force will be able to engage with and support the Institute for many months and years to come.

And perhaps members of the Seven Pillars Institute may have an interest in the Transparency Task Force too? With that idea in mind, the main purpose of this article is therefore to explain the background to the Transparency Task Force, how we work, what we are seeking to achieve; and to then ask the Dr. Kara Tan Bhala and the rest of the Seven Pillars community ‘How can we best help you?”

Teams of expert volunteers

Since our launch meeting on the 6^th May 2015 the Transparency Task Force has successfully attracted a great number of like-minded individuals who have been willing and able to give their time and support, on a purely voluntary basis. Our volunteers include many high-profile academics, market participants and consultants with deep subject-matter expertise. Together they are a phenomenal force for good.

Momentum is building fast – our list of volunteers is growing week by week and our ‘gravitational pull’ seems to be getting stronger and stronger as new team members are joining all the time.

Our ‘army of expert volunteers’ are organised into three teams, as follows:

1. The costs and charges team

This is our largest team and it is all about shining a very bright light on the hidden costs in investment, particularly pension funds. Hidden costs have a very damaging effect in four main ways:

1. Hidden costs undermine social justice, in that they prevent the consumer (or those representing the interests of the consumer such as pension scheme trustees) from being able to identify and obtain value for money; which in turn leads to disengagement with and distrust of the pensions and investment sector. The present levels of opacity are morally wrong and wholly unjustifiable.

2. Hidden costs substantially reduce the amount of wealth pension savers are able to accumulate for retirement. Because saving for retirement is a long-term exercise, the size of the fund accumulated is extremely sensitive to the amount taken in fees each year; far more sensitive than most people would think. To illustrate this point, as a ‘general rule of thumb’ a pension saver’s fund is likely to be reduced by about a third if the total cost of the fees and charges taken is 1% per annum. That’s a very substantial proportion indeed. But at 2%, around half the fund is lost through charges. The reality is that many pension savers think they are paying around 1% per annum but in reality are actually paying 2% per annum or perhaps even more when all costs are taken into account. In our low inflation/low yield era the negative impact of hidden charges is of great concern. The stark reality is that the situation risks alienating a complete generation of savers. This is an enormous concern to many counties around the world – the last thing governments want is millions of people in poverty in old age, angry at ‘the establishment’ as they will see it for failing to treat them fairly, transparently and ethically; the societal consequence and knock-on effects might be devastating.

3. Hidden costs prevent the market working efficiently. Markets cannot work efficiently if the true cost of what is being delivered is not known. Knowledge of true cost is a pre-requisite for the ‘invisible hand’ of market forces to work their magic. In market efficiency terms the pensions/investment sector is fundamentally flawed at best; some feel it is perhaps even completely broken. Again, this is a problem that effects people right around the world. In commercial terms it tends to mean that large, established financial services companies are able to take and keep hold of a high market share, preventing new, nimble and lower-cost organisations with simpler and more transparent charging structures from achieving the growth they ought to.

4. Hidden costs prevent those representing savers and investors doing their job properly. Pension scheme trustees are required to manage scheme costs. But ‘you can’t manage what you can’t measure’ and ‘you certainly can’t measure what you can’t even find’. In the USA, pension scheme trustees are being successfully litigated against by their pension scheme members for failing to protect their interests in relation to cost management. The context is that scheme members are obtaining lower overall net returns than they should be and are justifiably aggrieved so they are using the legal process to show that those they have entrusted to look after their interests are failing in their duty to do so. Is there a risk that similar legal activity will start to occur in other parts of the world? I think so; and if it did start to occur it will be a long, long time before it stops – millions of people around the world are being adversely effected by hidden costs in pension schemes. The potential adverse publicity would damage the public’s confidence in the pensions saving system as a whole, right around the world and when that adverse publicity is added to the reputational damage the pensions and investments brand has suffered in the last fifty years or so, we must be getting worryingly close to the point where the suspicion about pensions investing is beyond the point of recovery. What would be the consequences to society of people being even less willing than they are now to save to achieve financial independence in old age?

The Costs & Charges Team have been successfully identifying hidden investment costs for over a year now and the first stage of their research findings was presented to the UK’s Financial Conduct Authority, Department for Work and Pensions and many relevant trade bodies and professional associations, on 1^st July 2016, in London. The Costs & Charges Team’s work and the publicity it is attracting is helping to raise awareness of the issue and that’s very important because publicity is an important part of our strategy to solve the problem. That’s because the case for solving the problem is so compelling. We are seeing that once people are aware the problem exists they are motivated to help to solve it. It follows that a big part of our role is to constructively ‘parade the problem’ through evidence-based research and insightful dialogue until the market, the politicians, the consumer groups and the regulators find the status quo too intolerable to live with. The opacity problem is an ugly festering sore on the face of financial services. By making sure all stakeholders are aware it is there we massively increase the chance of it getting dealt with properly, and quickly, by those that have the power and the position to do it.

2. The stewardship and decision-making team

The volunteers in this team are working on a range of projects, each of which is based on the lack of transparency and visibility on key areas other than costs; and each of which will deliver tangible benefits to the consumer:

1. Some volunteers are dealing with the problems caused by a lack of transparency on the factors that inhibit the optimisation of how Environmental, Social and Governance issues are dealt with in investments. They are producing a Questions Bank to educate, enable and empower trustees.
2. Some volunteers are dealing with the problems caused by a lack of transparency on factors that inhibit rational decision-making, such as an asymmetry of information and behavioural biases’. They are producing guides and training materials to educate, enable and empower pension scheme trustees, and they are also feeding in ideas to relevant regulatory bodies.
3. And some volunteers are working on a Model Mandate, whereby a best-practice-based set of contract clauses will be provided free to pension scheme trustees. This will significantly reduce the risk of pension scheme trustees unwittingly signing up to contracts with service suppliers such as asset managers that contain ‘crafty clauses’ that are seriously detrimental to pension scheme members’ interests. This is a highly problematic area and we need to shine a bright light on the issue. The Model Mandate will be a great step forward for pension trustees and will put them in a much stronger position to negotiate fair and sensible terms with potential suppliers.

3. The international best practice team

As already mentioned, the opacity problem is a festering sore on the face of financial services. It adversely effects millions of people around the world – it truly is an international scandal.

The Transparency Task Force has built an international team of expert volunteers that is growing fast, our International Best Practice Team. We have people involved from the UK, Ireland, Canada, USA, Australia, Holland, Hong Kong, Columbia, France, Germany, and Sweden. The International Best Practice Team includes a particularly impressive list of subject-matter experts. We are extremely fortunate in having been able to recruit them into our community and we are becoming increasingly aware of the positive outcomes that can be achieved by bringing together like-minded people that had previously been unconnected, and then focusing their efforts to create tangible outcomes.

The International Best Practice Team is working on a Global Transparency Index (This is a working title as the final name of the Index has not yet been decided). The Global Transparency Index will be a country-by-country assessment of quantitative and qualitative research data that will form the basis of a ranking system. The countries with the most transparent financial services sectors will be at the top of the list and the least transparent countries will be at the bottom. By producing the Global Transparency Index, we create a wonderfully fertile platform for sharing best practice that will inevitably lead to constructive and searching questions such as:

• What are the most transparent countries doing that the others are not?
• What steps did they take to be able to operate as they do now?
• How is their transparency positively impacting their consumers and their society as a whole?
• What would be the ‘obvious key improvables’ for the least transparent countries to focus on?
• What are the obstacles preventing greater transparency from developing ‘all by itself’?
• How can regulators around the world develop a more standardized and harmonised approach?
• What does the position in the ranking say about the ethics of each country?

Also, it is becoming increasingly clear that the Global transparency Index will serve a particularly important purpose:

To explain this, imagine the issue of a lack of transparency in financial services as a spectrum; with one end of the spectrum (the ‘good’ end) being ‘slight opacity on costs and charges’ and at the other end of the spectrum (the ‘bad’ end) being ‘wholesale, systemic corruption’. Without doubt there are countries that are at the very bad end of that spectrum, whereby whole populations are being exploited for financial gain through widespread corruption. The vested interests in these countries are powerful, very powerful indeed. The individuals involved would not think twice to do all they can to protect their morally- bankrupt positions. The threat of intimidation, violence and perhaps even worse is, I would imagine, very much part of their defence mechanism. Given that in some countries people are murdered for very little financial gain at all it is easy to imagine what organised criminals would be willing to do to prevent the exposure of widespread, systematic corruption. That being the case, we have reason to believe that there are individuals around the world that want to blow the whistle on what is happening in their countries but they are literally too frightened to do so; fearful of the reprisals they and their families might suffer if they did.

For these individuals, the Global Transparency Index servers a very important purpose; our research findings will help to publicise what they individually are understandably too frightened to shine a light on. Our campaigning community can work together to tell what needs to be told. I cannot over-state the importance of this point. The harsh reality is that the level of ethics in the financial services sectors in some countries is so low that there are elements of it that can only be described as widespread, systemic corruption.

There is much excitement about the obvious value and usefulness of the Global Transparency Index to all sorts of stakeholders right around the world. The general sentiment amongst the team is ‘we can’t believe the idea hadn’t been thought of before’ and we are of course very keen to hear from anybody that might want to get involved, wherever they are in the world.

Impactful influence

We have worked hard to identify the key individuals who have the power and position to create the change that is needed. The Transparency Task Force does not have (and should not have) the power and position to put in place the codes of practice, protocols, regulations and laws to bring about the change that is needed. We are a campaigning community that does not seek to obtain power and position; we merely want to use rational argument and evidence-based research to build the thought leadership that will compel those with the power and position to use their power and position effectively, for the benefit of the consumer.

As such we have been careful to develop positive engagement with key people in the UK at the Department for Work and Pensions, the Financial Conduct Authority, the Pensions Regulator and various Members of Parliament. When engaging with these individuals and organisations we position ourselves exactly as we truly are – a consensus-building, campaigning community that does not have a commercial agenda and does not have pre-conceived ideas about what the best solutions might be. Our ‘solution agnostic’ approach resonates well and we like to think that our work aligns very neatly with the regulatory activity already underway in the UK including:

• The Financial Conduct Authority’s Asset Management Market Study. It is worth noting that two members of the Transparency Task Force, Dr. Anna Tilba and Professor Michelle Baddesley, have recently been working for the FCA, carrying out important research to inform the FCA’s Asset Management Market Study. This followed Dr.Tilba and Professor Baddesley speaking at our February 2016 Transparency Symposium; an event at which Mary Starks, Director of Competition at the FCA also spoke
• The Department for Work and Pensions + the Financial Conduct Authority’s work on pensions charges (as required under Section 44 of the Pensions Act 2014, which must be enacted during this parliament)
• The Pension Regulator’s work on pension scheme costs and charges as it relates to the Value for Money element of their new DC Code

We are sure that there are many similar opportunities to lobby for the positive change that is needed in other parts of the world; through legislative and regulatory activity that is already underway. This raises some worthwhile questions:

• Can you help us identify that relevant legislative and regulatory activity that is underway in your country?
• Can you help to lead on how we should feed into that legislative and regulatory activity?

We believe we are building a good reputation as a ‘voice of reason’ and as a balanced and neutral ‘force for good’. To evidence this point, it is worth noting that on the 12^th September we are running the first Transparency Strategy Summit in the world. This is being held at the Houses of Parliament, in London. Attendees will be the ‘great and good’ from all the key organisations in the UK including most if not all of these:

• The Association of British Insurers
• The Association of Member Nominated Trustees
• United Nations Global Compact
• The Financial Services Consumer Panel
• The London Business School
• The Pensions & Lifetime Savings Association
• The Pensions Advisory Service
• The Pensions Management Institute
• The Trades Union Congress
• The True and Fair Campaign
• Which?
• ShareAction
• The Pensions Administration Standards Association
• The Association of Professional Pension Trustees
• The Bank of England
• The Association of Professional Fund Investors
• The Centre for Policy Studies
• CFA Society UK
• Financial Reporting Council
• The Pensions Policy Institute
• The Society of Pension Professionals

Presentations will be given by the Department for Work and Pensions, the Financial Conduct Authority and the Pensions Regulator. The primary purpose of the first Transparency Strategy Summit in the world is to:

“build consensus on the best way to protect the interests of the UK’s pensions-saving public through full disclosure on all the costs and charges they are paying but not being told about”.

We believe that this approach of bringing together as many of the key stakeholders as possible and ‘getting them round the table’ to discuss the problems and the best ways to solve them is a healthy and civilised way to effect the change we are after. It is a change the sector needs and the public deserves.

Could we help to apply a similar approach in your country too? – Do please let me know if you think that’s a possibility.

The media matters

Raising awareness through the media is an extremely important part of our strategy. However, our PR budget to date has been a nice round number – £0, in fact. Despite this we have managed to get three pieces into The Financial Times, including, quite amazingly, onto the front page of the FT when they covered our research on hidden costs and charges. We have also been covered in The Daily Telegraph, The Daily Mail, Professional Pensions, Pensions Expert, Asset International, Corporate Adviser, Engaged Investor, Pensions Insight, European Pensions, Pensions Age, Money Marketing, Financial adviser, IPE and Responsible Investor, and more.

We have also been interviewed on BBC Radio 4’s ‘You and Yours’ and BBC Radio 4’s ‘MoneyBox’ and FTFM; all very relevant and very popular consumer finance programmes.

All this positive coverage has been possible despite a PR budget of £0, for two reasons:

Firstly, because of the strength and simplicity of our ‘people should be told what they are paying’ argument; and secondly because we have tried hard to relationship-manage the key journalists in our space. We have tried to ‘bring them on the journey’ with us and it is a strategy that seems to be working quite well. Overall, we are confident that a healthy understanding has been built between the Transparency Task Force and the media in the UK that will drive positive coverage for our cause for many years to come.

Are there media contacts in your country that would want to pick up on our story too?

WHO’S INVOLVED SO FAR?

I am extremely pleased with the quantity and calibre of the people that have become involved in the Transparency Task Force so far; but we know there are many hundreds more right around the world that believe as we do that the opacity problem is a festering sore on the face of financial services that desperately needs treating They (you?) could play a very important part in our progress and development, however small that part might be.

You might have insight, ideas and experience that could turn out to be absolutely vital to our work, so if you are in any way interested in what we are up to, or think you know somebody else that might want to know more please connect through andy.agathangelou@transparencytaskforce.org

Here’s a list of those that have got involved so far, organised into the three Teams I described earlier:

Thank you very much indeed for your interest in the Transparency Task Force thus far. Do please get in touch if there is anything you’d like to know more about us, I’d be delighted to hear from you regardless of where you are in the world.

But even more importantly, I genuinely want to know how members of the Seven Pillars Institute think we can best support your work – please do get in touch on that, ideally via Dr. Kara Tan Bhala.

Thank you.

Andy Agathangelou, Founding Chair, the Transparency Task Force

About Andy Agathangelou:

Andy made a living selling advertising space before joining financial services in 1986 where he went on to hold many senior sales, marketing and business development roles. He successfully transitioned from retail financial services to corporate financial services with increasingly greater involvement in the workplace pensions market.

In recent years he has held leadership positions in several pensions industry organisations, all of which are characterised by the progressive philosophy of “Enlightened Self Interest”, whereby individuals who act to further the interests of others (or the interests of the group or groups to which they belong), ultimately serve their own self-interest. Put simply it is about the idea that “by doing good you will do well”.

He is:-

• Founding Chair of the Transparency Task Force, the campaigning community dedicated to driving up the levels of transparency in financial services, right around the world. transparencytaskforce.org

• Chair of Pensions BIB, which created the Pensions and Payroll Data Interface Standard, the free and open data standard for those implementing Automatic Enrolment. PAPDIS is driving up efficiency into the market and driving down operating costs for suppliers. It is receiving widespread support. papdis.org

• Former Founding Chair at The Friends of Automatic Enrolment, created as a “collaboration catalyst”, to help drive up efficiency and interoperability within the large and complex Pensions Automatic Enrolment market. Friends of Automatic Enrolment has been winning widespread support and recognition, with even public recognition by MPs and the former Pension Minister for the work it did in building consensus and cooperation in helping to tackle the many challenges in implementing government policy. friendsofae.org

• Former Founding Chair, Friends of the Association of Member Nominated Trustees, which he helped to conceive and create and which has gone on to become an established organisation helping pension trustees to carry out their fiduciary responsibilities effectively. amnt.org