Pensions are big business at the moment. Partly because people are generally taking more interest in their finances, but also because there is a convergence of technology and service.
Pensions have always been seen as a background investment, one not to be tinkered with. But as technology helps highlight the excessive costs from legacy platforms and the lack of advice available to smaller pension holders they are becoming more transparent.
What does Profile Pensions do and what makes you different from your nearest competitors?
We provide personal pensions and there are three key points of difference really in our service versus everything else out there at the moment.
The first thing is that we give advice, and we give proper full investment advice; we’re not a robo-advisor that gives guidance, we give proper advice. What means in practice, for each customer who comes to Profile Pensions, is we create a personalised portfolio for them and for their pension.
We recommend the right asset allocation that takes everything into account; for example, how long they’ve got until retirement, their attitude to risk, their capacity for loss, all of those things. We also pick the best fund managers for them from the whole of market as well. It’s actual advice and results in a personalised plan for everybody that changes over time, as your situation and the market changes.
The second is we allocate to everybody an actual human qualified advisor, a real human, who is dedicated to you. Whilst we use a lot of technology to create the advice itself and that helps us keep costs down, but what we’ve found is that for a lot of our customers, actually being able to speak to a human who’s familiar with their situation and their case, it’s the same advisor, from time to time, it’s very, very helpful. If you have a question, there’s something you don’t quite understand, there’s someone to explain it to you.
There’s no minimum wealth requirement for that; as soon as you sign up, you get one, you can contact them whenever you want.
The third thing is that we’re whole of market. We are completely independent in terms of which fund managers and funds we recommend. We deliver that service at the same price point as a self-service SIPP or one of the digital pension providers who doesn’t offer advice or any of those services.
Fees varies a tiny, little bit, depending on your risk profile, but it’s around 0.85% for the platform, the funds and advice altogether. We deliver this next-generation pension product, as we see it, with advice at the same cost as a self-service or non-advised product today.
That’s about a third of the price of a traditional, IFA pension product, when you add in the advice, the platform and the funds.
Our mission is to make people better off in retirement.
We take it very seriously, to the point where we actually measure whether we do it or not. Whenever someone becomes our customer, we look at what they’re currently invested in. We look at the funds that they’re in, we take the ISIN codes, we look at the asset locations and the proportion invested in each fund, look at the fees, their platform fees, and we model all of that in the background.
Whilst we aspire to make people better off, we can see if we actually do. Then we publish that data; it’s on our website, you can go and have a look at it. What we’ve seen so far from a sample of about 3,500 customers where we ran this analysis last year is that, on average, after fees, we’re making people 3.7% per year better off, which equates to tens of thousands of pounds better off for a typical customer.
So far, I haven’t seen any other digital asset manager or pension provider do that kind of analysis, put that kind of money where their mouth is, if you like, on do they actually make people better off.
What can people invest in with Profile Pensions?
We’re independent so we have full coverage of the market.
We are big believers that the only free lunch in investing is diversification, and so we recommend globally-diversified equity and bond portfolios, with a mix of inflation-linked, non-inflation-linked bonds.
So very diversified portfolios but boxed from all fund managers in the market. But as you might expect, because we’re picking the best value, the best-performing, most established ones, and we’re very, very focused on cost, typically, that’s Vanguard and Black Rock and Fidelity and HSBC and L&G, and they’re the big managers you would expect.
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What’s your view on active management versus trackers?
Well, we are very thoughtful and we do a lot of analysis on the right asset allocation for each type of customer. To what extent should they be invested in equities and bonds, and to what extent should that be global versus UK equities or inflation-linked versus non-inflation-linked bonds. There’s obviously a degree of analysis and judgement, the sort of models that underpin it, but we have an investment committee; our chairman is an academic, Professor David Miles. There’s a lot of data, but also, a fair amount of judgement in that.
Some fund managers pick stocks and claim that they can beat their index, and, there’s just no data to support that. Those kind of fund managers are usually selling that story because they charge huge fees, and we don’t use them. If the data changes, so will our position on it.
We want the best outcome for our client and we get paid the same fees, regardless of what funds we recommend, and we’re successful and our clients are successful.
Does Profile Pensions offer ethical investing?
We do yes, we offer ESG options to all of our customers for all risk profiles.
We try and match our ESG offerings as far as we can to the broadly diversified index, without going too far down picking individual stocks, which we think are getting far too active and brings too much risk and bad outcomes potentially.
Over half of our customers now are invested in sustainable funds, in ESG funds. That’s a really big deal to a lot of people.
Most people don’t look at their existing older pensions to see what they’re invested in, which overwhelmingly, is not ESG.
What are your ambitions for Profile Pensions as a business?
I’ve been the CEO of Profile Pensions for five years now. It was a small, more traditional IFA business originally that I then joined, then the rest of my team then joined as the basis for a more automated advice business.
My career before this was in venture capital. Asset management and investing but more on the technology side. The people at Profile Pensions are generally split between those two backgrounds actually; a mix of technology or pensions and finance.
We now have a billion pounds of assets under management and about 23,000 ongoing customers.
Our ambitions are to make the typical pension saver better off in retirement and actually measure that. The way we think we can do that is by making advice really available to everybody, not just people who are wealthy. But also easy to consume for people who are not particularly financially confident and maybe don’t spend all that much time thinking about their pensions.
We’ve seen from some of the results that what we’re doing works and works very well. So the next stage for us is how do we go from 23,000 customers to 250,000 customers, and then half a million customers.
What’s the biggest mistake you see people make when dealing with their pensions and what can they do about it?
The biggest mistake that we see is most people don’t get engaged with their pensions at all.
Most people can’t avoid having a pension, but for most people, it’s you can’t avoid having three/four/five/six/seven/eight/nine/ten pensions as you change jobs and create all these small pensions lying around, particularly now with auto-enrolment. What we’ve seen is people, in a lot of cases, don’t even know where their pensions are.
One of the things we do for our customers is help track down old pensions for them, which we’ve got a good record of. Some people don’t know where their pensions are.
Also, most people believe they don’t pay fees.
It’s not that they don’t know the fees; it’s that most people think the fee is zero, and that’s wrong in all cases. On average, the fees of pensions we’ve looked at historically is about 1.1%, without advice in it.
People don’t know how their pensions are invested or what the performance is, and it gets more and more difficult to uncover these things, and again, that’s the problem that our service solves. You can get engaged with your pension by doing all this yourself, or you can get engaged with your pensions by giving them to us to look after.
But doing nothing I think is the mistake that most people make.
Is there a book you could recommend that will help people be better investors?
Yes, there are a couple of books, if I may.
We spend a lot of time talking to consumers about investing and savings and what I see at the moment is a lot of is a confusion between investing and speculating. Bitcoin is a good example, Tesla I think has just gone over a trillion dollars of market cap; it’s trading at 380 times earnings. The stock’s up 10x in the last two years. Seeing things like Wall Street bets threads on Reddit and the AMC short, for example.
There’s this culture of speculation everywhere, and of course, there’s a history to it too. The US housing boom, the real estate boom, the dot.com boom, all the way to the Dutch tulips boom.
So the first book that I’d really encourage anyone who’s interested in this is The Clash of the Cultures by John Bogle, who’s the founder of Vanguard. The book is written for a layperson who’s just interested in learning more about investing, but it’s all about the difference between investment and speculation.
The point he’s making is people need to learn the behaviours of a good investor, which is long-term, it’s stable and it’s boring. Not speculate, because that typically works out badly. Particularly now, there seems to be a lot of it, unfortunately. Because we’re so focused on the typical consumer, rather than the wealthy, I think it’s often the typical consumer who gets hurt by this kind of speculation. They often blast into it as it collapses.
The other book I’d suggest is by David Swensen, who is the Yale Chief Investment Officer, and he’s famous principally for running the Yale endowment and for, at Yale, having a very alternatives heavy asset allocation. He comes up a lot when you speak to fund managers of expensive, alternate funds like private equity, venture capital, hedge funds and others. He’s written extensively about institutional capital management and why he did that at Yale.
But he also wrote a book for personal investors, called Unconventional Success.
This is probably the most successful investor of his generation in illiquid and unconventional assets. The book he wrote for personal investors is about staying away from all of that, because for an individual personal investor, that isn’t the right approach. You’re not going to be able to pick the right fund managers. You’re not going to have access to them. And their fees are too expensive. You need this big, institutional apparatus like Yale has to do this. For a personal investor, it’s long-term, it’s sober and boring. That gets the right asset allocation, diversify heavily, and keep the costs down.
Any final words of wisdom?
Really, just to reiterate what I said before. Of course, we’d love everybody to become our customer, but I do think the first step that everybody should take who has a pension is just learn a little bit more about it. Learn what fees you’re paying, learn what it’s invested in, maybe have a quick look at performance if you can, and see if you’re happy with that, does that seem okay, does it seem suitable? Just do that first little bit to get engaged with your pension.
Jordan Mayo, is the CEO of Profile Pensions