Lack of Standards in the Retirement Industry
Having made a move from Insurance to Retirement like so many of my peers, I was first awestruck by the sheer numbers in this industry in terms of total assets: with the total assets of pension funds about $10 trillion more than insurance companies.
Soon after, I was dumbstruck by the total lack of standards amongst record keepers and asset managers alike in the pension industry. The insurance industry has some very well established standards such as the ACORD, AAIS, NAIC etc. and these standards are used widely. There are separate standards for each line of Business within Insurance such as Life & Annuity, Property & Casualty, Auto & Fire and even Reinsurance; and this greatly improves flow of data and information exchange. The standards in the insurance industry also contain frameworks and tools that evolve with industry’s changes and growing needs.
In contrast, there is no standard for data exchange in the retirement industry in the US. There is one body that recognized the need for standardized data exchange among record keepers and made an attempt to arrive at a data exchange format but it is nowhere close to a stage where the industry accepts this format, or can seriously use it for any sort of information exchange.
The problem here is two-fold:
- The format is archaic at best, and has not kept up with the changing industry needs. There is only a format for data exchange with no Data Standards, no Frameworks and no Security or Maintenance standards. The standards do not reflect industry best practices in terms of technology, processes or reference architecture.
- The Record keepers in the retirement industry are also very varied – Between TPAs, small Record keepers, Mutual Fund houses to Banks, Credit Unions and Insurance Companies that offer retirement plans and record keeping and administration services, there are enough differences to confuse the best of us.
The main reason for this lack of standards is that each of these entities started offering retirement plans but wanted to use their inherent systems to service them, without really designing something from the ground up. You still see many Insurance providers calling their retirement plans ‘Products’ and some Mutual fund houses call their retirement plans Funds. This only goes to show that due credit and importance is not given to a part of their business that may be as big if not bigger than their CORE business. A quirky analogy would be adding a few parts to a refrigerator and expecting it to function as an air conditioner.
I will not just blame the Industrial bodies for the lack of standards. They can certainly try harder, but it is the industry that will need to sit up and acknowledge the elephant in the room and move towards a singular platform and standard that an industry of such a big size warrants!