In this month’s ‘Off The Record’ we talk technology. The internet and information technology are ubiquitous today, but how far are pension funds embracing the brave new virtual world that surrounds us? This time around we asked whether you were getting to grips with the microchips….
And the answer appears to be ‘kind of....’
Asked what services the net is used for within the fund, 45% say that manager selection is carried out electronically. A third of managers say the scheme is served on-line by its custodian, although only around 10% use the web for any kind of securities dealing.
The figure jumps to just over half solely using computers for administration and 66% doing all their reporting by web communication.
The numbers slip back to just over 20% using the web for member record-keeping, although around half provide their members with information on-line.
Perhaps somewhat surprisingly, only a further third of managers say they intend to go electronic for the services above in the future – internet fatigue already, or just a fear of all those manuals and training days?
Those that are heading into cyberspace mention custody, administration and member information as the most likely areas where they will begin looking to banish the burden of all that paper.
In terms of manager selection, most schemes appear to be going to source to check on potential hires, with 45% saying they consult the web sites of individual asset managers for information.
A third of you have used automated internet manager search sites to extend the range of choice for manager selection while around 20% of schemes have looked at performance measurement sites and 11% have investigated the information that consultants have put on-line.
The slight reticence about internet take-up by pension funds, however, does not appear to be as a result of bad experience.
Just one in 10 funds say they have had problems using the net, although those that do appear to be getting it bad.
One manager says the scheme has trouble retrieving any of the information that is on the system and that this happens as regularly as twice a month. Maybe time for a change of provider there!
Nonetheless, only a handful of funds say they have any concerns about using an electronic format, although a couple of managers posit a belief that the internet should not be used for manager selection, with one noting: “I don’t think the internet is helpful for manager selection, there is too little information. It is barely sufficient for a first selection.”
Asked how manager search systems should make their money - the message given is clear, though – flat fee or nothing.
Over half the respondents believe up-front charges for asset managers using such databases are the only way forward.
Percentage fees appear to be a definite no go, with not one manager recommending this as a method of payment. One scheme head opines: “Percentage and success fees would be excessive for this kind of service.”
Another adds: “A flat fee should be paid by the asset manager because it is a form of marketing for them.”
Of the web sites being considered for such manager searches, 11% of you have been to eFrontiers.com with similar numbers passing through PlanSponsor.com.
IPE-Quest.com came out on top in the number of funds consulting its services with 44% saying they had visited the site.
Several scheme managers noted, however, that it is too early to comment on how successful internet manager search sites will be.
While a healthy number of funds have much of their information accessible on the web, this does not mean that scheme administrators are becoming web junkies.
Around 40% of you check your figures and reports on a monthly basis, with only a couple of managers saying they do this on a weekly basis. That’s not to say there is no enthusiasm for getting online more often – with one reply stating: “We will certainly access data more often in the future!”
That’s the plan sponsors covered. How about the members and what they can access on the net?
A third of schemes say their members can call up their fund amount online and a fifth say a list of the managers investing the assets can be seen. Go down to the stock level and only 10% of plans offer this kind of information to affiliates.
Around 30% cent of you do provide information on benchmarks and risk profiles nonetheless and the number jumps to a surprising 56% of funds which provide computer information on investment criteria such as socially responsible investment (SRI) – a figure possibly boosted by recent SIP (statement of investment principle) legislation implemented in the UK.
Only 22%, though, offer their members the chance to select their own investments, so it may be some time, if at all, before Europe follows the US example by allowing employees greater control of their own retirement future.
These figures seem to reflect the frequency with which workers are visiting their company pensions sites. Those funds which have taken the time to examine how often their members go online (and there are not many of you…) come back with comments of “seldom” or “less often than monthly”. Did someone say online revolution?
Interestingly, few schemes say whether the internet systems they use are outsourced or not. Those that do reply say they exclusively farm out the online business, with one fund pointing out that the whole system is set up by the investment bank it uses.
For the most part, pension fund managers do believe that the internet will have a profound effect on their business further down the line, by driving down fees.
‘Competition’, ‘increased productivity’ and ‘transparency’ are the most commonly paraded answers. One manager is going to need convincing though, commenting: “I hope it will, but I am not certain.” This is not an isolated pessimistic voice: “Do not exaggerate the importance of the web,” warns another manager.
A voice of reason puts things in perspective: “It will be a communication tool in addition to existing communication means, ultimately replacing paper communications to a large extent.”
Let’s end on a bright note. There is potential out there to simplify and improve things considerably – a point many funds recognise: “The technology will lead to faster decision-making and more complex management approaches will become possible.”
Another manager adds: “Data will be more informative and accurate with automated selection of funds and investment schemes available.” A further reply notes: “There will be less fees in trading, less costs in reporting and posting information to clients.”
Experts in the internet field claim that if the potential of the web could be compared to a year, we are in the first few hours. Responses to this month’s ‘Off The Record’ seem to bear this out, with some pension funds still to wake up yet. All things considered, it could be some time before anyone really knows how far the e-volution will transform the way that pensions and investments are handled. It should be an interesting ride! IPE