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FCA proposals to extend remit of IGCs presents few customer benefits argues AJ Bell

News Team, 19/07/2019

AJ Bell believes that expanding the remit of Independent Governance Committees (IGCs) to cover drawdown investment pathways risks loading extra costs on SIPP customers with little discernible benefit.

The notion of extending the scope of ICGs has been put forward by the FCA, which has initiated a consultation on its proposals.

The regulatory body is suggesting extending the number of duties the ICG has to improve its effectiveness at covering sustainability issues and drawdown investment partnership. It now believes that ICGs should report provider policies on environmental, social and governance (ESG) issues and consumer concerns. The FCA also is suggesting that ICGs should oversee the value for money of investment pathway solutions for pension drawdown.

Typically, IGCs oversee the value for money of workplace pensions where the employer pays in for two or more members, whether provided by a life insurer or a SIPP operator. The current arrangements are designed to protect primarily disengaged members who are ‘defaulted’ into an investment solution via automatic enrolment when they are saving for retirement. This is often known as the ‘accumulation phase’.

The consultation is now closed to responses, but this has not stopped the investment platform making its views known on the matter.

Tom Selby, senior analyst at AJ Bell, believes the measures put forward in the FCA consultation will influence the decision making of investors looking at SIPPs.

He said: “Extending the remit of IGCs to cover investment pathways and ESG issues, while undoubtedly well-intentioned, risks increasing costs on customers and replicating work already carried out by firms under their existing regulatory obligations. We do not believe the benefits of such a move would outweigh the costs. This is particularly the case in relation to SIPPs. Given customers make an active choice to invest via a SIPP and are therefore much more likely to be engaged with their investment choices, demand for pathways solutions among this group is likely to be relatively low."

Mr Selby also pointed to the potential of higher per-customer costs could also have unappreciated negative consequences.

He said: “If the pool of customers that use pathways is relatively small, the per-customer cost of introducing IGCs for them will be high. In reality these costs would be subsidised at least in part by customers not using pathways who would not be in a position to receive any benefit that might arise."

Commenting on an alternative solution, he pointed to AJ Bell’s current arrangements, and emphasised the importance of firms taking responsibility for the solutions it offers clients.

He concluded: “Instead we believe it should be the role of the firm to ensure investment solutions offered to members are suitable. In our view the obligations placed on providers and senior managers by existing and planned FCA regulation should be sufficient to achieve the outcomes the FCA are seeking. AJ Bell already has in place an investment committee with a number of independent, non-executive members to provide oversight on matters such as ESG, member concerns, stewardship and value-for-money. An IGC would therefore risk duplicating, either in full or significant part, governance arrangements that are already in place.”

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