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Adviser  >  News  >  August 2008  >  Investments – why is governance is so important?

Investments – why is governance is so important?

Governance is the framework established to ensure decisions are taken in the best interests of investors.

Why it’s important

The importance of having a sound investment governance process in place should not be underestimated. Saving for retirement is one of the most important financial decisions your clients will make. And it’s one that should be reviewed regularly. However a lot of people investing money into a pension plan have no support in place to oversee whether or not their investment choice is performing as expected

Having an ongoing governance framework delivers peace of mind to your clients and helps you meet your Treating Customers Fairly (TCF) responsibilities.

Governance at no extra cost

Our governance promise means that all of our investment options within our Governed Range have a formal review process. It is an integral part of our proposition, and comes as a standard feature with no extra cost. The cornerstone of our governance framework is our independent Investment Advisory Committee (IAC), which meets quarterly to review asset allocations. The IAC not only reviews our own asset allocations, but also keeps an eye on the external managers available within our range.

The facts

A survey¹ carried out by Hewitts showed only 11% of contract-based schemes have a formal governance process in place, while almost one in four schemes have no form of governance in place at all. Also, for people who have been moved into a money purchase arrangement from an occupational scheme. How many of them understand that the investment risk has now passed from their employer to them?

According to another recent survey², only 10 -15% of DC scheme members understand the investment risks they face. But this is not just a problem for members of group pension schemes:

• How many of your client bank receives a regular review of their investment choice to make sure it’s still on track?
• How robust is your process for determining the appropriate asset allocation or fund selection for each client? Unduly focusing on past performance alone may result in switching out of a fund at the bottom of the market and buying into a fund at the top of the market.
• And how will this affect you from an ongoing TCF perspective?

Find out more

For further information about how our investment solutions can help:

• Please contact your usual Scottish Life representative or
• Visit www.scottishlife.co.uk/investment

1. Hewitts 2007 DC survey, April 2007
2. Byrne, Alistair, Debbie and Blake, David P., “Dealing with the reluctant investor: Innovation and Governance in DC Pension Investment”, April 2007