CTI: 3 years on

Cost Transparency Initiative: 3 years on

Craig Rimmer , Policy Lead: Master Trusts and Standards, takes stock of a strong beginninG.

The Cost Transparency Initiative (CTI) is three years old this November. The CTI was founded by the PLSA, the Investment Association (IA) and the Local Government Pension Scheme Advisory Board (SAB) to shine a light on the fees and charges that schemes are paying to their asset managers. 

It has a board made up of the founders and other professionals representing pension schemes and is ably Chaired by Mel Duffield. The DWP, the TUC and the regulators attend the meetings as observers. The CTI is also assisted by its Technical Expert Panel, helping with the creation of all of the templates and giving advice on issues as they arise. Thanks to them we have a Main Account template and User Summary template as well as templates and guidance on Fiduciary Management, Private Markets, LDI and Custody. 

Three years on, the CTI has extremely good coverage of the occupational pension schemes market with most major schemes and consultancy firms using the CTI templates This has resulted in a wide coverage of pension members who benefit from lower costs and better performance. We would like to see even wider adoption, especially amongst smaller schemes, to give greater cost transparency overall in occupational pensions.

Before the CTI, schemes were using their own cost templates, which meant a lot of time spent by asset managers getting to grips with myriad different questions. CTI has standardised cost templates and as a result asset managers find them easier to fill in and the cost data returned to schemes has become more consistent and comparable. As an initiative it has really got under the skin of costs and given trustees the ammunition to challenge managers. 

For some schemes the conversations have evolved to benchmarking themselves against others and aiming to have top quartile low costs across each of their mandates. One third party information provider that offers a benchmarking tool found that all of their clients had at least one mandate that benefited from fee negotiation and that the average cost saving was 15 basis points.

The CTI framework is even being examined by European firms based in the European Economic Area that want to get ahead of the curve on cost transparency.

With ESG investments being at the forefront of every trustee’s mind, it is worth noting that cost transparency is a key component of the S of ESG. This has led to some not just benchmarking on costs but also benchmarking asset managers on transparency.

In this View Point, my colleague Ruari Grant has written about the Value for Money framework being considered by TPR and FCA. CTI is a major step in how we get to the framework by understanding the financial part of the equation. Of immediate help, CTI can also assist schemes with their own value assessments. 

After three years of creating a framework and templates and implementing an adoption strategy, CTI has entered a steady state phase. We have now moved on to communicating its benefits and giving more guidance on the filling in of templates.

In a world where pension schemes are facing more cost challenges through regulations to trustee insurance, an initiative that can help reduce costs sometimes between 20 and 50 basis points has to be applauded. Consultants have played a major part in helping trustees analyse and understand the CTI data. It is worth having a similar conversation with your consultants to see if cost savings can be made for your scheme.

If you need to find out more about the CTI and what the next years have in stall for transparency, please don’t hesitate to get in contact with me.

[email protected]

Find out more about the Cost Transparency Initiative here.