Asset allocation has a large role to play when it comes to determining the volatility and returns of a pension scheme’s investments. In this insight article we look at the asset allocation tools provided by workplace pension providers.
A typical pension fund’s investment portfolio will contain a mix of stocks, bonds and cash. When a client first looks to join a scheme, their adviser advisers will discuss their requirements and set an asset allocation mix with them. However, as markets move the actual asset allocation mix will most likely begin to deviate from plan.
Tracking asset allocation enables the adviser to monitor these deviations and make and adjustments deemed necessary. Asset allocation tools can make this monitoring process a lot easier.
Our data shows that two thirds of workplace pension providers provide asset allocation tools.
Royal London provides a standalone tool. Aviva My Money, Aviva My Money Master Trust, Aviva Designer, Scottish Widows (GSIPP) and Scottish Widows Master Trust provide a tool integrated into their platform.
Aegon Workplace ARC, Fidelity, Fidelity Master Trust, Standard Life, Standard Life DC Master Trust and True Potential provide asset allocation tools that are both standalone and integrated into their platform.
Of the providers offering a tool, two thirds were built in house. Three providers went down the route of having their asset allocation tool built by a third party. Aegon Workplace ARC had their built by Financial Express. Scottish Widows GSIPP and Scottish Widows Master Trust had theirs built by Barrie and Hibbert.
When it comes to who the tool was primarily built for, different workplace pension providers seem to have taken different approaches. Scottish Widows GSIPP and Scottish Widows Master Trust only allow the client access to the tool. Standard Life and Standard Life DC Master Trust only allow the adviser access. Aegon Workplace ARC, Aviva Designer, Aviva My Money, Aviva My Money master Trust and Royal London allow both the client and adviser access to the asset allocation tool. True Potential do not allow the client or the adviser access.
Aegon Workplace ARC and Royal London also allow the adviser to restrict access to the client.
From time to time, workplace pension providers who offer asset allocation tools make changes to the asset allocation model. Our data shows that the asset allocation models for over half (58%) of workplace pension provider tools are modified every three months. The remainder are either modified every 6 months, every 12 months, or not on a regular basis.
All but one of these workplace pension provider asset allocation tools will notify both the firm and the adviser when these changes are made. Royal London however only notify the firm.
When it comes to making changes to the asset allocation model, only Royal London allows the adviser to make their own changes. These changes are also tested.
A key aspect to making an asset allocation tool helpful for an adviser, is the ability to include funds that their clients are invested in.
Our data shows that all workplace pension provider asset allocation tools, other than those provided by Standard Life and Standard Life DC Master Trust, provide the default fund information to make the process of populating funds into the tool easier.
Different providers offer the selection of different fund tools. SEDOL codes are the most popularly used with only Royal London not allowing their use. However, Royal London’s tools works differently and fund codes are not relevant to the tool. EPIC fund codes are not in use by any of the tools.
Overall, our data shows that there is not a single workplace pension provider’s asset allocation tool that can allow every form of input and change that an adviser may find they need. The tools are relatively inflexible and only Royal London’s allow for the adviser to make changes to the asset allocation model.
It is also worth noting the providers who do not offer any tool at all. Aegon Master Trust, Hargreaves Lansdown, Legal & General, Legal & General Master Trust, Salvus and Scottish Widows do not currently offer advisers any asset allocation tool.