Good governance is central to our Investment Proposition For investment professionals only
Contents 02 What is governance? 04 Why is good governance so important? 05 How does the governance process work at Standard Life? The Investment Solutions Forum Fund selection Ongoing monitoring and governance Fund closures 13 What does governance not do? 14 Introducing our governance experts Important Please note that this guide talks about governance for our insured life and pension funds only. 2 Good governance is central to our Investment Proposition
We invest a great deal in governance Governance is vital for consumer protection, and we believe that the best companies consider it a core part of their business. As a fund provider, we want our customers to feel confident that we re working to ensure that the funds they re invested in perform in line with their expectations. We therefore have robust procedures in place, both for fund selection and for ongoing monitoring and reviewing. This guide outlines how we put governance into action, and gives you a clear insight into our processes and people. Good governance allows you to choose our fund range with greater confidence. Good governance is central to our Investment Proposition 01
What is governance? Governance involves working to ensure that funds perform in line with our expectations, and with those we set for customers. At Standard Life, our governance process has two key components we look both at the fund groups which manage the funds on our insured platform and at the funds themselves. The key aims of our governance process are to check that: the fund groups which manage the funds on our insured platform meet our requirements there are no significant structural or organisational problems that could affect performance we have a thorough understanding of the funds that we re making available to customers funds are being run in line with their stated objectives (where applicable) and in a way that s compatible with Standard Life s operational requirements customers are treated fairly 02 Good governance is central to our Investment Proposition
Governance is about helping us to better meet customer expectations. Good governance is central to our Investment Proposition 03
Why is good governance so important? Good governance puts customers interests at the heart of our business, and helps providers and advisers comply with their responsibilities. We believe that a strong governance process is essential for the peace of mind of our customers, their advisers and our corporate clients It helps to ensure that we only have companies on our insured platform that we have confidence in A robust governance process helps us set more accurate expectations for our customers by increasing our understanding of how funds are managed Governance increases our understanding of the factors, both positive and negative, which drive performance, and aims to reduce the risk of funds underperforming due to structural problems Governance helps to ensure that we have an effective process with good controls and an audit trail Governance is designed to benefit everyone customers, advisers, trustees and the Standard Life group. 04 Good governance is central to our Investment Proposition
How does the governance process work at Standard Life? The Investment Solutions Forum The Investment Solutions Forum provides a formal setting for the senior people within Standard Life group who are accountable for our fund range to review any developments or problems that have arisen. One of their key responsibilities is to ensure that any customer expectations that we set are aligned to likely outcomes. We have an extensive framework in place to ensure that our fund range is designed, developed, marketed, monitored and changed appropriately. The Forum allows those accountable to review the output from this framework. This helps them to oversee the key policies, processes and controls which govern selection and monitoring of fund groups and our fund range. In addition to this, investment related issues which could affect our ability to meet our customers' expectations are referred to the Forum. Any significant governance issues can be escalated through the Forum directly to our Executive. The Forum meets regularly to discuss risks that have arisen, and to make decisions on what action should be taken. Fund selection We recognise how difficult it is for customers to select funds from an increasingly wide and complex fund universe. Our fund range aims to be up to date and relevant, offering a broad selection of styles and sectors. We therefore continually review it and, where appropriate, launch or remove funds from our platform. We currently offer more than 180 insured funds covering a wide range of management styles and asset classes, including equities, bonds and property. All new funds that we are asked to add to our platform go through our fund launch process, which has been designed to ensure that all relevant due diligence is carried out as early as possible. The process looks at both the fund group that manages the fund, and the fund itself. We will only add a fund to our platform when we are confident in the fund group. Some of the governance activities overseen by this Forum are discussed below. Good governance is central to our Investment Proposition 05
06 Good governance is central to our Investment Proposition We dedicate significant resources to selecting funds.
As part of our due diligence process, we make sure that any new funds meet a number of operational criteria, including that: they re priced on a daily basis there s a same day dealing cycle, with prices delivered before market close they re UCITS or NURS compliant the underlying fund and share class have already been launched, and have been available for at least one month the investment strategy of the underlying fund is clear We also consider: previous operational experience with the fund manager in question our research and knowledge of the fund group known changes planned for the fund (eg a merger involving the fund group) potential liquidity issues with the fund suitability of the fund for our customers how the fund fits with our range as a whole Ongoing monitoring and governance Ongoing monitoring of our fund range is carried out at two levels. We carry out regular, in depth due diligence on the fund groups who manage the funds on our insured platform, and we also continue to monitor individual funds once we ve added them to the platform. Fund governance Monitoring (looking and questioning) Fund performance is only one of the criteria we look at within the fund management process. We also analyse risk controls, structural issues, and any other underlying causes of performance anomalies. We escalate any issues which need to be resolved to the Investment Solutions Forum every month. We look at funds with mandates, where we set specific restrictions and limits on what can and cannot be invested in, as well as external fund links (EFLs) funds, where we are providing a link to a fund managed by other fund managers. Our processes include ensuring the funds are behaving as we and our customers would expect, but also that we have set appropriate expectations within our literature. In addition, there are dedicated individuals within Standard Life Investments whose role it is to ensure that any discretionary fund related governance issues are raised and resolved. More information on our unit linked pricing controls can be found in our Understanding unit linked funds guide (GEN569). Good governance is central to our Investment Proposition 07
As part of our regular processes we look at: Performance we look at long and short term performance of each fund, both in absolute terms and relative to its peers, benchmark and market trends Risk we consider how each fund is performing against various risk measures Attribution where necessary, we look at what is driving returns, and ensure this is consistent with the way the fund is supposed to be managed Commentary we often request commentary from the fund manager on how the fund is being managed, what they believe has driven any underperformance, and how they expect the fund to perform in future market conditions Interaction where we need further information, we discuss concerns and issues directly with the fund management group Governance (escalation and resolution) Formal fund review At these formal meetings with the fund management group, we focus on issues highlighted by our analysis. We try to understand the root cause of any problems, and whether there are any structural problems with the fund. Issues include performance, whether the fund is being managed consistently with any style or size criteria, and whether appropriate and adequate controls are in place Investment Solutions Forum recommendations for change or action for any issues which can t be resolved are escalated to this Forum. The forum aids those accountable in deciding what action should be taken Fund group governance A thorough understanding of the fund groups who manage the funds on our insured platform is essential. We therefore have a comprehensive process in place to monitor fund groups which aims to ensure that we understand every aspect of the group. This includes ownership structure, senior management positions, risk committees, annual results and other relevant financial information, Treating Customers Fairly/Financial Conduct Authority breaches, any risks facing the group and any changes to company strategy. We gather information through a variety of methods, including questionnaires and face to face meetings with the fund group. We then analyse this information from an operational, financial, reputational and regulatory perspective across the key areas of the business to learn more about the fund group. We look way beyond performance when researching funds. 08 Good governance is central to our Investment Proposition
Fund group management process Our process for managing fund groups has six key components: Information gathering Analysis Heat maps Basic information; Owner & business information; Financial information; Product risk; Operational risk; Regulatory risk meetings Face to face Follow up challenge Internal Good governance is central to our Investment Proposition 09
Information gathering we issue a 40 page questionnaire annually to all fund groups. The questionnaire gives us in depth information on the fund group which includes how it s run, its financial accounts and the risks that it s facing Analysis we review the information in the questionnaire and assess the fund group and any risks facing it. We look in detail at current or potential risks facing the fund group Face to face meetings we meet with the major fund groups on our platform on a regular basis to follow up on any issues raised by the questionnaire. We meet with an average of 40 fund groups every month, including on site visits to ensure that we speak to the key people Internal challenge we review the findings from our meetings internally to ensure that nothing has been missed Follow up where necessary, we follow up with fund groups on any further questions raised by our investigation Heat maps we use heat maps to collate the results of the questionnaires and meetings. These help us to assess the likelihood and impact of a risk materialising for each fund. They also provide a visual representation of the risks facing the fund group We look at a wide variety of different risks for each fund group. We categorise them by the type of risk: Business risk the culture of the group, likely growth and change in the organisation, their strategic planning and any key man risk and succession planning Financial risk the total funds under management, an analysis of the group s balance sheet including the amount of debt it has taken on, the amount of cash available to the firm Product & operational risk whether the group has an investment committee and its roles and responsibilities, the structure of its internal controls, the product development and marketing processes and how concentrated the group s assets are Regulatory risk we check the company s adherence to Treating Customers Fairly (TCF), as well any litigation against the firm Fund groups are also sent a fund specific questionnaire at least twice a year. This helps highlight other issues and acts as a sweep up of any corporate actions, such as fund group or fund changes, which we may not have been aware of. We can delve deeper into any specific issues raised by these questionnaires at our face to face meetings. Any areas of concern are reported to our Investment Solutions Forum, which assesses what action, if any, needs to be taken. We research fund groups in as much depth as the funds. 10 Good governance is central to our Investment Proposition
Corporate actions notifications keeping you informed Where there are changes to funds and fund groups which may have a significant impact on our customers, we ll make sure they re kept fully informed: A senior management group meets weekly to review all corporate actions received This group assesses the impact on our customers, including whether the actions meet TCF principles. We inform our customers when we believe there s a significant impact We also post information about fund and fund group changes on our website: http://www.standardlife.co.uk/1/site/uk/ help/fund info/news Fund closures We may decide to remove a fund from our insured platform for commercial reasons, due to an external fund closing or due to concerns around the fund or management group. Most fund managers will underperform at some point due to the ebb and flow of the markets, so we don t remove funds solely due to short term underperformance. Instead, we look at the circumstances around the underperformance, to determine whether it s attributable to fundamental problems. These could include poor internal risk controls, significant change within the investment team, or failing to follow stated processes. Most issues can be addressed through fund change or providing clarity through communications. However, where problems are significant and seem unlikely to be rectified we would expect to remove the fund. If we decide to remove a fund, we select a replacement fund which has, in our opinion, the closest investment objective to the fund we re closing. Where possible we give customers three months notice of our intention to close the fund to give them the opportunity to move to another fund of their own choice. After three months, if they haven t moved to another fund, their holdings are automatically switched into the replacement fund. However, even after the automatic switch has taken place, customers can usually choose to move to a fund of their own choice at any time. Good governance is central to our Investment Proposition 11
12/16 Good Good governance is central is central to our to our Investment Proposition
What does governance not do? The governance process does not: advise on the suitability of a fund, product, or otherwise provide financial advice provide any guarantees about the funds on our insured platform and how they re managed prevent fraud Good governance is central to our Investment Proposition 13
Introducing our governance experts Keeping up to date with markets, managers, the funds and regulatory developments is very important, but it also takes a lot of time and experience. We invest considerable resources in our governance processes, and the teams responsible form an investment centre of excellence within Standard Life. They include experienced investment professionals from a range of backgrounds, all with in depth investment knowledge and significant technical capability. There are three areas involved in our governance process: 1. Fund Development The Investment Proposition Development Team is a team of five with an average of 12 years industry experience. It is overseen by Eddy Reynolds, who has over 20 years industry experience and has previously worked at AEGON, SWIP and Lloyds TSB Private Banking. Eddy is also the Chief Investment Officer at Standard Life Wealth. The team is responsible for shaping the insured fund range by launching and closing funds, driving investment related marketing activity, and providing technical expertise to a wide range of internal and external customers. 2. Investment Groups' Strategy & Insight Led by Graham Dow, who has over 24 years industry experience, Investment Groups' Strategy & Insight is a team of five with on average over 14 years industry experience. They engage with over 100 fund management groups to understand their ownership structure, internal controls and processes, financial stability and risk management framework. Fund groups are formally assessed annually and the team also have ongoing engagement so that they are kept aware of any significant changes. 3. Investment Proposition Governance The Investment Proposition Governance team is led by Gareth Trainor, CFA, who has 16 years industry experience, and has previously worked at Scottish Widows and AEGON. The four team members are high quality analysts with an average of 13 years of wide ranging technical experience across the fund management industry. They are responsible for analysing the performance and risks of our funds and escalating any fund related issues across the 800+ funds in our wider insured fund range. In addition, the team ensures that the funds are being managed in a way that is consistent with how they re being described to customers. 14 Good governance is central to our Investment Proposition
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16 Good governance is central to our Investment Proposition
Good governance is business as usual for Standard Life. We understand the benefits it brings to our customers and advisers.
Pensions Savings Investments Insurance Find out more To find out more about our funds, please contact your Standard Life account manager or visit www.adviserzone.com Call us on 0845 279 2000 (Mon Fri, 9am to 5pm). Call charges may vary and calls may be recorded and/or monitored to help improve customer service. Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. www.standardlife.co.uk INVP71 18 Good 0214 governance 2014 Standard is central Life, to images our Investment reproduced under Proposition licence