There is a common language when it comes to beer and bar snacks - we need the same for pensions.
A bizarre and weird thing happened to me the other day. I went to meet with someone I’d never met before, in a pub, not far from home.
Having got through the slightly awkward bit at the beginning when we arrived (walk in, look around for someone sitting alone looking like they are waiting to meet someone, spot a person and nervously ask them “Hello, are you XXX?”), we got onto the first bit of business; “can I get you a drink?” Beer and a bag of salt and vinegar ordered, I sat back, twiddled my thumbs and waited for my new friend to come back from the bar.
I watched as, tray in hand, he wandered across. Placing the tray on our table he pushed a glass of red wine and a bag of pork scratchings across to me. I laughed.
“Oops, I think those are yours”. He looked back at me puzzled “I ordered a beer and a bag of salt and vinegar.”
“Yes”, he replied still looking puzzled “that’s what I’ve given you.”
Now I looked puzzled “no. That’s a glass of wine and they’re pork scratchings.”
He stood back a little, a hint of alarm in his eyes “I don’t think so Richard. It’s a beer and a bag of salt and vinegar.”
Now I love the English language. It’s rich and clever. It’s beautiful. Its nuances and complexities thrill, delight and amuse me, but it really only works if you understand it.
I speak a few words of functional French, but not enough to get a joke. I don’t really understand it and so, while I can get by, I don’t fully appreciate its, no doubt, beauty.
I speak no Russian at all which means that if I were in Moscow, I’d have no hope of asking for and getting a beer and bag of salt and vinegar. Language only works if the parties using it have a common understanding of it. My imaginary new friend (yes I made it up!) and I obviously didn’t.
A common understanding means that there are standard usages. Beer to me is an alcoholic drink made from yeast-fermented malt flavoured with hops – preferably with a bitter taste and served just below room temperature. Broadly speaking, most English people would understand what I mean when I say beer.
This is not the case, however, when I say Annual Management Charge. While we can probably all agree the meaning of the component parts, there is no common understanding of the composite. Nor is there of investment return, transaction cost or many other investment related terms. As a consumer of investment products, this is a problem because I can’t always compare apples with apples. I can’t establish whether I’m getting comparable performance. I can’t see how costs compare.
Which is why the Financial Conduct Authority’s (FCA’s) decision to support consistent and standardised disclosure of investment costs and charges is a good thing - the fact that they intend to ask an independent person to convene a group of relevant stakeholders to develop this further is a welcome thing. My only request is that they go beyond “just” costs and charges and delve deeper into the complex and inconsistently used language of the investment management industry. A common definition of, for example, “fiduciary management” or “target date fund” would also help drive competitive pressure on asset managers. A clearer understanding of products, what they do and their charges – all good.
We could all raise a glass to that.
This blog first appeared in Pension Funds Insider. To continue reading, please click here.