Jun 9, 2017
We are growing with the tectonic shifts of the pension market

Author: Marina Rudneva

In an interview with, Marina Rudneva, the CEO of FUTURE Financial Group, spoke about the way pension funds operate in the conditions of freezing of accumulated contributions and increased requirements from regulatory authorities, the justification of the reduction in the number of market participants and their unification, as well as the trends and prospects of the pension market.

In an interview with, Marina Rudneva, the CEO of FUTURE Financial Group, spoke about the way pension funds operate in the conditions of freezing of accumulated contributions and increased requirements from regulatory authorities, the justification of the reduction in the number of market participants and their unification, as well as the trends and prospects of the pension market.

The number of clients has reached 30 million people. Almost 5 million of them are in our Group’s funds. How have NPFs of FUTURE Financial Group developed in 2016?

The Group has closed the year with net profit of RUB 4.5 billion. We achieved that thanks to an increase in the interest revenue by 42% and income from investment activities by 106%. NPF FUTURE, the Group’s flagship fund, has shown a profit of RUB 1.5 billion, which is an average market indicator.

We keep enhancing our assets. Last year, along with the development of acquisition activities, NPF FUTURE took over three funds — NPF StalFond, Uralsib and Our Future. In this regard, we see significant opportunities associated with reducing operating expenses and improving the quality of management. We have already recorded the economic effect of taking over StalFond that amounts to RUB 300 million. We expect a proportional effect in the 2017 reporting as a result of taking over NPF Uralsib and NPF Our Future.

The funds report under IFRS standards only for the second year. What indicators affect profit and loss?

This is wide range of factors, including revaluation of securities in the portfolio, accumulation of reserves for certain assets to ensure the stability of the portfolio, even in the event of force majeure in the economy, the amount of remuneration paid by the Management Company, the reduction in operating expenses from the accession of funds. Still, when it comes to several funds within one group, the allocation of expenses between NPFs plays an important role. Thus, in 2016, only one fund in our group, NPF Future, was involved in accumulation on a material level, and it was responsible for all acquisition costs, which influenced the result under IFRS. At the same time, we should understand that the results of the campaign we will be seen in profits of the 2017 reporting year.

How do market fluctuations affect the fund’s activities? Did the stock market slow down significantly in Q1?

Indeed, the Russian stock market has been growing vigorously throughout last year. But this positive dynamic was replaced by a savage correction at the beginning of this year. At Q1-end, MOEX index has lost almost 11%. Obviously this can affect the results of NPFs' activities because shares are one of the tools for investing.

But it is important to realize that quarterly profit is an interim target. Firstly, it is not allocated to accounts, funds allocate only annual returns to the customer accounts. Secondly, short periods for pension money are not relevant. The accumulation period in NPFs is long term, therefore, pension money is also long term. Their profitability should be evaluated in long-term periods, from three to five years, and conclusions on the effectiveness of investments should be made based on them. Preferably, to have a true and fair view, you need to see the indicators for the past five to eight years.

What was the driver of the pension sector in 2016? What development plans do you have being one of the largest market players?

In the context of continuing "freezing" of pension savings and preparation to launching the system of individual pension capital the market still has two growth sources: attraction of newly insured people and investment income. Key financial groups that consolidate pension business, have one more additional source: growth as a result of taking over NPFs, which provides prospects for additional offers to customers and cross-sales.

We are one of the few continuously developing groups on the market on the market continuously developing. There are no players with such intensive growth within one year. Last year, FG FUTURE acquired three funds — Uralsib, Our Future and Obrazovaniye, and at the beginning of this year has closed a deal on purchase of shares of NPF Socialnoe Razvitie. The mixed growth strategy via the acquisition of funds and organic growth of business enabled us to enter the top five Russian companies — leaders in the pension market. According to the results of the previous year, the total volume of assets under control amounted to RUB 291.8 bln, which is about 12% of the total volume of NPF market. And now, when the perimeter of the Group is finally shaping, the previous steps should have effect. The number of our clients amounts to 5 million people, and it is a unique client base for which we will now develop cross-selling, service support, remote service.

What is the necessity for taking over the Group’s funds to NPF FUTURE? Why not leave each of them to develop in accordance with their strategy?

Unification of funds — management, financial and human resources — always gives powerful synergy. It enables improvement of corporate governance, which means being more stable in the market economy environment, better able to cope with external challenges. Nowadays, pension funds of FUTURE Financial Group are a team combining all sectors of the financial market: banking, insurance, pension. We are constantly enhancing our expertise, borrowing best business practices from the absorbed funds and applying our lean business processes to them. In the long run, the consolidation will ensure single mechanisms for decision-making, operational activities, a common approach to the development of investment strategies in the funds. As a result, all activities become optimized and more seamless.

Additionally, for funds, consolidation is always a challenge. Against the backdrop of simultaneous processes of consolidation of non-government pension funds within the group, which requires significant costs and resources in the structure of the group, we are obliged to demonstrate the continuity of business processes, because we continue to work for existing clients.
In 2016, NPF FUTURE along with attracting new and retention of existing clients, three new NPFs were taken over. The fund switched to reporting under the Unified Chart of Accounts, improved its risk management system, and launched pilot stress tests. This was a great load we had successfully undertaken.

Yet further development is necessary. The industry requires the funds to accumulate resources. In the last three years, market costs have grown, the regulatory authority has reinforced control: nowadays, funds are needed to invest in improving management procedures and developing risk management systems. In the long run, all those efforts are aimed at monitoring the interests of insured people. But the costs are increasing, so we should be enhancing our business volumes as well.

Does that mean mergers are in fact a forced step?

That is a market trend. We are growing with the tectonic shifts of the system. Over the past three years, the pension market landscape has changed dramatically, major structural changes have taken place, and NPFs in a good sense are no longer what they used to be. Those are not „side pocket“ pension funds of enterprises, but financial institutions that are able and ready to contribute to the country’s economy.

All required infrastructure has been created for that: the formation of the guaranteed system of savings was completed and risk management mechanisms were built. Today, leading NPFs take an active part in the development of the industry’s professional standards, assist the market regulators in creating a legal and procedural environment. By merging into large financial holdings under control of experienced business teams, the funds will be able to operate really effectively.»

But on the other hand, how does a client benefit from the merge?

While observing the risk-return ratio, any investment strategy in the long term will yield comparable results. We operate on one market, there will be no large gaps, especially given the limitations on investment tools that are being introduced today. Maximum potential will be achieved by those financial groups that will be able to provide the best service. Those who manage to build a fundamentally new environment, an ecosystem with protected consumer rights and an in demand product offering, will be able to become an open, transparent and reliable financial partner. The way it works in banks these days. And here expertise has a crucial role because major players will be able to ensure the quality of service precisely due to the synergy of resources and competencies, management efficiency and optimization of operating expenses. We are moving in this direction.

How are you going to achieve that?

We communicate with our clients to improve customer service. As of today, we have less than 1% of unanswered calls. With the growth of business and the number of inquiries, our headcount has not increased proportionately, even by half. We have several channels of remote communication with funds in the Group, we are preparing to launch a new full-range personal account, and, we are examining how to implement these trends for using digital technologies and remote services in relations with our business partners, which is important. Effective cooperation on the financial market is key to success nowadays. Partners regard us as customers too, checking if we are able, for example, to offer the best technologies for concluding a contract?

What kind of service can we talk about if today a client applies to NPF twice at the most — to transfer savings and to assign pension?

Our goal is to create the need and conditions for the client to contact us more often, to make communication both permanent and useful. Provision of services, assistance in financial planning, interaction at different stages of life, not only upon reaching the retirement age. Nowadays, for this purpose the entire infrastructure has been created that should be filled with the right content.

How many funds provided full-range personal accounts on websites three years ago, communicated with a client through social networks and had smooth well-running processes in their contact centers? Were there many banks where you could conclude a contract for pension services three years ago? And to what extent was that service convenient and how much time did it take?

Today we conclude contracts for compulsory pension insurance in ten major retail banks with a total network of more than 2 thousand branches. The conclusion of contract takes no longer than 10 minutes, and 90% are concluded via an electronic document management system, that is quick, simple, performed via secure communication channels without seals and powers of attorney.

Nowadays things are different. The market has become more complicated and interesting, but at the same more humane. NPFs have gradually fit into the financial infrastructure that banks and insurance companies have formed in liaison with retail companies, and communication with clients has become more simple and convenient. The next step is giving this association new meaning.

To what extent can additional sales be promising, given the narrowness of the pension product line, legislative restrictions on marketing in pension funds?

We have already developed amendments to the Federal Law No. 75-FZ related to restrictions on marketing in pension funds and we are ready continue these efforts.

Today pension funds operate under conditions of investment restrictions. What are the advantages of big groups from the investment activity perspective?

Large pension groups are strong institutional investors required for the development of business and infrastructure. The consolidation of funds allows us to find anchor investors for the project in less time, and therefore, implement projects faster.