With successful players likely to be those with scale, capital, deep behavioural insights and strong brands, surely the fast-growing DC sector is a fertile opportunity for a global bank. That was the view Alison Hatcher took five years ago when she was head of global pensions at HSBC.
Fast forward to November 2019 and Hatcher is CEO of HSBC Retirement Services and her brainchild, the HSBC Master Trust has just been authorised by the regulator. The first five clients won’t come on board until Q1 2022 – a delay caused by the fact that since authorisation, new market entrants have to prove concept first, get authorisation and then go away and build – but Hatcher has big plans for the master trust, targeting a top-five position within five years, excluding auto-enrolment players.
Hatcher sees multiple ways in which the HSBC Master Trust will serve retirement savers. Growth plans include target hybrid scheme and GPP business, as well as a longer term strategy of making master trusts an attractive proposition for retail customers.
Talking to Hatcher, her enthusiasm for the project is clear. Having spent 12 years inside HSBC she clearly feels this is the launch she was destined to deliver. Having been brought into the bank to develop the institutional pensions business, she rose to the role of global head of pensions, where, five years ago, she put the proposal for a master trust to the bank.
“It’s been a dream job, really. Building an idea and getting to take that idea from vision to actual implementation. It’s not easy, and I recognise that it’s a huge opportunity for the bank. They could have chosen somebody else, but I’m very lucky that they back me and support me,” she says, acknowledging that many of the team that helped her shape the proposition are still working with her today.
With HSBC having exited the UK DC sector in July 2013 after launching in 2010 with a GPP, group stakeholder and S32a buyout offering, the first question many intermediaries will ask is what’s different this time. “The market was very different back then. HSBC had entered the auto-enrolment market, which was very small schemes. They took the decision that it was not an area where they could facilitate customers in an effective way. I can honestly say that HSBC retirement has evolved a lot since then. The mentality and the strategy have changed,” says Hatcher.
“This was an opportunity that myself and a couple of other people took to the organisation to show how everything we’ve learned in Hong Kong, Mexico, France, could be brought together to benefit members, customers and their outcomes. We’re different people, a different strategy, different leaders, different markets. I’m in it for the long run. This is very much a career-defining thing to do.”
Hatcher is under NDAs that mean clients can’t be named yet, a ban that extends to whether the significant HSBC staff scheme is going into the master trust.
“We’re book building. So we are working to bring five clients on with commitments at more or less the same time,” she says. “We have a very strong pipeline right now. As we go through that pipeline and go through the governance processes, that [the number and scale of schemes transferring in] will become clear to us. But we have a very strong ambition, as you can imagine, to be a scale player, a very significant scale player, within a five year period.”
She says it is hard to pinpoint how much scale will have been achieved by the end of 2022.
“Luckily, we’re not being pushed to have hard scale numbers. We have the vision and we’ll work to that in a timely fashion. We’ve got to grow our business as well. There’s a lot going on in the market at the moment. We need to make sure we’re supporting those clients coming through in the right fashion.
Top five target
“If we discount the auto-enrolment providers – we’re not in that market, we’re trying to be a value player – I would very much like to be in the top five value providers within the next five years. And I think that’s absolutely doable, given the bank and given the support that we have in the market today. A lot of that will come down to the market consolidation in the shape of the market as it evolves.”
So is HSBC open to the idea of buying other master trusts to help it get to scale?
“Yes, possibly. I’m open to opportunities and we will evaluate everything that comes our way,” says Hatcher. Hatcher’s expansion plans are not just targeting single-trust to master trust switches or acquisitions. “We also have a specific hybrid solution and are looking at bringing GPPs over into the master trust,” she says.
And is HSBC going to be playing on price? “We are very competitive, and I think we will be disruptive. It’s all about value for us – not just about the cheapest possible price point. That comes across in the fact that we are very focused around financial wellbeing and making sure that individuals have the right tools. But that can be very cost efficient for corporate sponsors.
Retail ambition
“In addition we have the retail bank and the opportunity in the future to look at not just wealth, but those coming into retirement – leveraging the bank,” she says. This would involve individuals choosing to invest through the master trust, not just via employers, a trend that has emerged in Australia, where super funds switch from provider to provider, with even some advised clients now moving to take advantage of the scale, expertise and low cost of the Aussie mega supers.
“The master trust can be a very interesting solution for individuals that don’t want to utilise a set structure. But I do think that that is something for the future as possibilities grow and more choice and optionality is needed to satisfy individual requirements. It’s one to watch, and then make sure we’re creating the right solutions for individuals at that time,” she says.
Hatcher doesn’t rule out this at-retirement solution offering incorporating a collective defined contribution (CDC) solution. “CDC, or an alternative, in the future. There’s going to be potentially insurance, potentially deferred annuities. It’s a wonderful area of innovation. I’m involved in so much so many discussions around what could be created,” she says.
So when it comes to the controversial issue of CDC, would she describe herself as net positive?
“I’m open minded. Because there’s a lot of unknowns if I’m being honest, in how the market is going to evolve and what the members are going to need. So I view myself as being not positive, but open at this time to evaluating the idea,” she says.
ESG and climate
HSBC is not alone amongst financial services providers in being on the wrong end of pressure groups on a wide range of social and environmental issues. But it has received generally positive feedback from climate activists in recent years, with a 2020 report from ShareAction largely complementary about its net zero ambitions. In March 2021 a shareholder campaign to phase out coal investments was accepted by the bank, tackling what the preceding year’s ShareAction report had described as the ‘elephant in the room’.
Hatcher’s stance is that the master trust will take a strong position on environmental, social and governance (ESG) investing, and one of the funds it is using is an index fund that requires constituent companies to achieve a 20 per cent uplift in their ESG rating to stay in the index, with the aim being that the investment delivers a positive effect. She also speaks of the stewardship role the master trust can play within the larger group.
So what does she make of the challenge of achieving net zero in a world that still has a lot of climate change sceptics, while dealing with the tension placed on workplace pension schemes to maximise returns?
“I don’t think these challenges are new. Only a few years ago, we were looking at ESG and saying ESG funds were lacking because we were screening out so many of the profitable or income-generating stocks. Asset managers have had to look at those challenges and say, how do we adapt and what can we do in order to make sure that we continue to uphold these principles, but also to do it in a cost efficient, risk adjusted way that delivers best value for individuals.”
Market differentiator
So what, in a nutshell, is it that will make the HSBC Master Trust different to the competition?
“The vision is that we want to deliver better member outcomes through a holistic view of wealth. As you would expect there are other areas from the organisation that we can leverage and bring together, as well as our experience in other countries. We wanted to make sure that we could help individuals in the short term through things like budgeting, through open banking, through port consolidation, through utilising not just nudges but discussions on short term finances that there can influence their longer-term decisions.”
For Hatcher, good spending and savings habits start with small changes. A platform-based personalised approach delivered through the HSBC Tomorrow platform can, she hopes, bring significant improvements to scheme member financial wellbeing and outcomes.
“Budgeting is a very good way of looking at this, because if you know how much money you’re spending monthly now, it will help you make an informed decision about how much you might need in retirement.
“We want to make sure we can communicate on a regular basis with individuals on many areas of finance to increase awareness, help guide them and support them through decision making.”
HSBC is opting for an outsourced business model, which extends to being open architecture on investments, accepting that it does not have the best solution to all the components in the chain. Hatcher sees this as a strength.
“I don’t think any one player can do everything that is needed to support individuals in their retirement journey throughout the whole journey.
“An outsource business model, not a disaggregated model, is very important today, because not only are member needs changing and evolving over time, but also we’re in a market that’s evolving from a regulatory perspective, from digitalisation. The disaggregated model allows us to be agile and upholding the best service standards, but also adapt and innovate for the future,” says Hatcher.
The HSBC Master Trust is partnering with XPS for the administration platform, long-term wealth partner Fidelity for the investment platform and Abaka as the digital partner with whom the HSBC Tomorrow has been built. “Our Tomorrow platform is devised so that we’re constantly asking questions along a journey, but people don’t realise it in the same way as answering a questionnaire.
“The trick here is to utilise this data to create personal communication not about pensions and retirement, but about short term savings, saving for those goals. And we can then use that to engage better.”
The master trust market is a congested place, but with capacity concerns emerging as single-trust schemes rush to consolidate and some early big scheme wins, this new launch could soon have wind in its sails.