Question and answers

We’ve answered here questions you may have about this change

When Standard Life and Aberdeen Asset Management Group (our current Investment Manager) merged to create Aberdeen Standard Investments we thought it was appropriate to review our long- term asset management arrangements to ensure they continue to offer good value for our customers, and are capable of generating good investment outcomes.

We believe these changes will benefit your investment through the prospect of improved future performance over the longer term.

No. However, we believe these changes will benefit your investment over the longer term.

We considered factors such as, their investment capability, fees & charges, quality of services, governance and oversight, value for money, past performance and transparency.

We believe appointing Schroders to take on c£80bn of actively managed funds will benefit our customers. Schroders has leading asset management capabilities, a stable investment team and philosophy, and strong performance across multiple asset classes.

Property funds hold a smaller number of assets (properties) which are bought and sold relatively infrequently and have higher transaction costs than other types of assets.

As with other actively managed funds, a new Investment Manager will aim to replace some existing assets with others that they expect will contribute to investment performance. However, it’s not feasible to undertake this transition quickly given the nature of property as an asset class.

The advantage of changing Investment Manager at a later date is to give a longer lead time for change in manager, over which period the new manager can give input to the sale and purchase of properties.

Hermes provides active investment strategies and investment expertise to a broad and fast-growing range of global customers.

Hermes are highly experienced in ethical investment. Their goal is to provide a better financial future for their stakeholders as well as a better, more sustainable society.

They use a holistic approach to investing that incorporates environmental, social and governance (ESG) considerations into all their investment products, and manage £33.5bn (as at 31st December2018) in assets across equities, credit, infrastructure, private equity, private debt and real estate. To find out more visit www.hermes-investment.com/ukw.

Passively managed funds, also known as tracker funds, will continue to be managed by Aberdeen until 2022.

Schroders’ selection as our preferred partner for active asset management was on the basis of a thorough review of asset management capability in the market. The decision to enter into a wealth management joint venture with Schroders was separate from, and subsequent to, the selection of the firm as Investment Manager for our actively managed funds.

Lloyds Banking Group (LBG) Insurance and Schroders Personal Wealth have separate contracts with Schroders.

The Insurance contract has appropriate provisions to protect against conflicts of interest and will be overseen through formal governance and supplier management protocols. Any exercise of our rights under the Insurance contract will have no bearing on the Schroder Personal Wealth business.

The Wealth contract will be updated for the joint venture and will be overseen by Schroders Personal Wealth management and governance. The Schroders Personal Wealth business also has appropriate conflict of interest policies in place, including restrictions on Schroders’ ability to select its own funds within the joint venture’s investment propositions.

The changes will apply to our customers invested in a number of Scottish Widows, Halifax and Clerical Medical funds, including life and pension fund investors; and Lloyds Private Banking and Bank of Scotland Private Banking wealth portfolios (now Schroders Personal Wealth).

All of the products which invest into the affected funds are branded Scottish Widows, Clerical Medical or Halifax. The ongoing communications received by customers will incorporate one of those three brands. Some customers will have invested into the affected funds through a product purchased in a Lloyds Bank or Bank of Scotland branch but depending on the product, their ongoing communications will be branded Scottish Widows or Clerical Medical.

The companies which own the funds are as follows: Scottish Widows Unit Trust Managers, HBOS Investment Fund Managers Limited, and Scottish Widows Limited.

The registered details for the bank brands mentioned above are:

Scottish Widows Limited. Registered in England and Wales No. 3196171. Registered office in the United Kingdom at 25 Gresham Street, London EC2V 7HN. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 181655.

Scottish Widows Unit Trust Managers Limited. Registered in England and Wales No. 1629925. Registered Office in the United Kingdom at Charlton Place, Andover, Hampshire SP10 1RE. Tel: 0345 300 2244. Authorised and regulated by the Financial Conduct Authority. Financial Services Register number 122129.

HBOS Investment Fund Managers Limited (Registered in England No. 941082). Registered Office: Trinity Road, Halifax HX1 2RG. Authorised and regulated by the Financial Conduct Authority. Financial Services Register number 119223.

Halifax is a division of Bank of Scotland plc. Bank of Scotland plc is registered with company number SC327000. Our registered office is at The Mound, Edinburgh, EH1 1YZ. We are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 169628.

Lloyds Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278. This information is correct as of August 2019 and is relevant to Lloyds Bank plc products and services only.

Clerical Medical is a trading name of Scottish Widows Limited. Scottish Widows Limited is registered in England and Wales No. 3196171. Registered office in the United Kingdom at 25 Gresham Street, London EC2V 7HN. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 181655.

Whilst we’re changing the Investment Managers, control of the mandates and the underlying funds will remain with Scottish Widows. This will ensure that the funds continue to invest in line with our commitment to our customers.

The majority of assets, including our pension default portfolios, are held in multi-asset portfolios mandated by Scottish Widows. Here we have full responsibility for the portfolios including their strategic (or long term) asset allocation and selection of component funds for each of the asset classes.

In most cases, we currently outsource stock selection within these component funds to Aberdeen. We ensure that both the portfolios and component funds are being managed in line with their mandates and in each case, monitor their investment performance.

The products in which customers invest are unchanged. There won’t be a change to the funds’ annual management charges.

Your fund or funds within your unit-linked savings policy, protection plan, bond, endowment or pension plan may invest directly in assets, or indirectly through another fund (such as one of our OEIC funds), or through a range of funds for a multi-asset portfolio.

If the fund invests directly in assets or via one of our OEIC funds then there may be a short term increase in transaction costs to the fund. If the fund is a multi-asset portfolio fund which invests in several other funds, then only some, or even none, of these underlying funds may be affected by this change. Where this is the case, the fund will bear minimal or no increase in transaction costs.

The estimate of transaction costs that will be charged to the funds during this initial period will be capped to limit their impact on performance.

Transaction costs are incurred by our funds when investments are bought and sold. These can include transition manager fees, broker fees and commissions charged for carrying out the trade, taxes incurred when buying and selling different types of investments, and other costs. They are paid from the value of the fund. During the short transition period these may increase for some of our funds.

A transition manager is used to conduct the process of adjusting investment portfolios to align to the investment strategy of a new incoming Investment Manager cost-effectively and over a short period of time, with minimal disruption to portfolios, while managing market risk. Efficient management of these events is an important part of a strong governance structure to protect asset values.

The transition manager’s fees are paid by the funds as part of the transaction costs. In the interests of our customers, we’ve estimated transaction costs and capped the amount that will be charged to the funds during the transition period. The level of the cap will vary by fund and is determined by our expectation of future performance, up to a maximum of 0.75%. Any amount above the individual fund caps will be paid by Lloyds Banking Group.

We will mainly use the transition manager (TM) for our OEIC funds, which some life and pension funds invest in.

We will also use the TM for the Scottish Widows Limited Pension North American fund, because it is directly invested in assets rather than indirectly via an OEIC.

The Life and pension funds which invest via a TM managed OEIC are:

Halifax Funds Scottish Widows Funds Clerical Medical Funds Bank of Scotland Investors Club
Halifax Income Life Formerly Lloyds TSB American Clerical Medical Corporate Bond Life World Equity Fund
Halifax Ethical Life Formerly Lloyds TSB American Pension Clerical Medical Corporate Bond Pension Fixed Income Fund
Halifax Ethical Pension Scottish Widows North American Life Clerical Medical Ethical Life
Halifax Ethical Pension Scottish Widows Corporate Bond Life Clerical Medical Evergreen Pension
Halifax European Life Scottish Widows Corporate Bond Pension Clerical Medical European Life
Halifax European Pension Scottish Widows Pension Protector Pension Clerical Medical European Pension
Halifax Far Eastern Life SW PM UK Long Corporate Bond Pn Clerical Medical Far Eastern Life
Halifax Far Eastern Pension Scottish Widows Environmental Life Clerical Medical Far Eastern Pension
Halifax Fund of Investment Trusts Life Scottish Widows Environmental Pension Clerical Medical South East Asia Pension
Halifax Fund of Investment Trusts Pension SW PM UK Equity Clerical Medical International Growth Life
Halifax International Growth Life Scottish Widows Ethical Life Clerical Medical International Growth Pension
Halifax International Growth Pension Scottish Widows Ethical Pension Clerical Medical Overseas Pension
Halifax Japanese Life Formerly Lloyds TSB European Growth Evergreen Life
Halifax Japanese Pension Formerly Lloyds TSB European Pension Clerical Medical Japanese Life
Halifax North American Life Scottish Widows European Life Clerical Medical Japanese Pension
Halifax North American Pension Scottish Widows European Pension Clerical Medical North American Life
Halifax Smaller Companies Life Formerly Lloyds TSB Smaller Companies and Recovery Clerical Medical North American Pension
Halifax Smaller Companies Pension Formerly Lloyds TSB Worldwide Growth Clerical Medical Smaller Companies Life
Halifax Special Situations Life Scottish Widows Global Equity Life Clerical Medical Smaller Companies Pension
Halifax Special Situations Pension Scottish Widows Global Equity Pension Clerical Medical Special Situations Life
Halifax High Income Life St Andrews World Equity Life Clerical Medical Special Situations Pension
Halifax High Income Pension Scottish Widows High Income Bond Life Clerical Medical UK Equity Income Life
Halifax Pelican Life Scottish Widows High Income Bond Pension Clerical Medical UK Equity Income Pension
Halifax Pelican Pension Formerly Lloyds TSB Japan Growth Clerical Medical UK Growth Pension
Halifax Independently Managed Smaller Companies Life Scottish Widows Japanese Life Clerical Medical UK Equity Pension
Halifax Independently Managed Smaller Companies Pension Scottish Widows Japanese Pension Clerical Medical UK Smaller Companies Life
Formerly Lloyds TSB Far East Pension Clerical Medical UK Smaller Companies Pension
Formerly Lloyds TSB Pacific Basin
Scottish Widows Strategic Income Bond Life
Scottish Widows Strategic Income Bond Pension
Formerly Lloyds TSB Income
Formerly Lloyds TSB Balanced
Formerly Lloyds TSB UK Equity
Scottish Widows UK Equity Life
Scottish Widows UK Equity Pension

Transition management is only required where the majority of the current holdings of a fund need to be changed to meet the new Investment Managers’ investment targets. Where the current holdings of a fund are largely in line with the Investment Managers’ expectations then they will manage any changes through their normal trading process.

Funds will incur transaction costs over a short period of time whilst changes are made to investments with a view to seek outperformance. These estimated costs to the funds will be capped and monitored by us in order to limit their impact on short term performance. The cap will vary dependent on the fund and is set at a level we consider to be appropriate, determined by our expectation of future performance (considering market volatility), up to a maximum of 0.75%.

Any amount above a transaction cost cap will be paid by Lloyds Banking Group.

We believe the changes made by the new Investment Managers will benefit your investment over the longer term. However, as part of our usual robust governance process, we’ll continually monitor their performance against benchmark and other targets.

We’ve capped transaction costs at a level we consider appropriate relative to normal market volatility to limit any impact on short term performance.

We believe the changes made by the new Investment Managers will benefit your investment over the longer term. However, as part of our usual robust governance process, we’ll continually monitor their performance against benchmark and other targets.

We recognise that you may have an immediate need to cash in some or all of your policy or pension plan and may have questions about the impact of transaction costs on short term fund performance.

If you are thinking of cashing in some or all of your policy or pension plan in the short term, we strongly recommend you seek independent advice.

You should bear in mind that more risky funds are likely to be more volatile over the short term in turbulent markets. Irrespective of the change of investment manager, we suggest you seek financial advice if you are concerned about the impact of market volatility on your chosen funds.

Passive investment management (also referred to as index tracking) aims to closely match the assets in a recognised financial index, such as the FTSE All Share. This means a passive fund should closely match the performance of its index before deduction of charges.

Active investment management involves an Investment Manager making investment decisions and trying to beat returns of the relevant financial index, referred to as the benchmark.

No. The new Investment Managers will not be increasing the annual management charges.

There is no suggestion that serving notice has led to any deterioration in performance.

We carry out robust investment governance and monitoring and will ensure there is enhanced oversight during this period. We remain responsible for the funds and portfolios provided to our customers.

We are working with Aberdeen, Schroders and Hermes to adhere to a detailed plan to implement the new arrangements.

Not in the vast majority of cases where the nature of the funds and how they are invested does not change.

To protect your interest and maintain value for money, we will set clear performance standards and targets which the new Investment Managers will be required to meet.

The decision to change Aberdeen as the Investment Manager for the mandated funds does not reflect an intention to change the current purpose or nature of any of the funds. The transition approach has been to mandate funds 'as is', broadly reflecting existing constraints, appetite and the risk profile of the funds.

However, at a detailed fund level, the change to the new Investment Managers has required small changes to investment control parameters and performance targets, but these changes do not alter the nature or purpose of the funds.

Further information

Independent advice

If you’re unsure about how any of these changes may affect your investments, we recommend that you speak to an independent adviser. If you don’t have an adviser you can find one at unbiased. Remember a financial adviser may charge for any advice they give.

You can find free and impartial money guidance from the government at www.moneyadviceservice.org.uk or by calling free:

0800 138 7777

Monday to Friday from 8am to 8pm, and Saturday from 9am to 1pm.

Glossary

It’s difficult to avoid jargon in financial services, so you may have come across some unfamiliar expressions. We’ve explained them here.

See glossary

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