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The massive changes in AFP funds triggered by advice from consulting firms have become a headache for the financial system. Studies show that, on average, there are more losses than gains for people. Now there is more evidence of another fact: massive changes affect the profitability of all participants in a fund.
The topic came up during the presentation of the Financial Stability Report (IEF) before Congress. There, the president of the Central Bank, Mario Marcel, and the Minister of Finance, Ignacio Briones, joined forces to raise the risks of these unregulated mass consultancies and the need to advance regulations that protect future pensioners.
Since 2015, a bill that reinforces the responsibilities of market agents “sleeps” in Congress. The initiative empowers the Superintendency of Pensions to regulate these advisors, demanding knowledge and minimum standards, which could reduce problems such as conflicts of interest and the delivery of inaccurate or false information.
Economy
Even with the drop of 16% of the multi-fund A in March, this alternative accumulates a real return of 148.4% in almost 18 years. Considering this is key to avoiding bad decisions.
But how do you get people to protect their savings and change their funds thinking about their own profile, expected returns and years ahead to retire? The task is titanic and starts with the information.
The IEF warns that these massive recommendations “have significantly increased their frequency in recent months, increasing volatility in some markets, which is why they could have effects on financial stability. “
From October to date, 10 massive recommendations for a change of fund have been made. The number of members who follow these alerts (or change of their own accord, impossible to differentiate) reached 200,000 in January of this year, according to information from the Superintendency of Pensions.
When alerts cause massive changes in affiliate portfolios, they affect the prices of the assets that make them up. That is, if the instruction is to “take refuge” in conservative funds, the AFPs must buy more fixed income instruments; if it is to switch to risky, they must acquire more shares. In both cases, in addition, they sell assets of the funds from where there are exits.
Economy
Osvaldo Macías told PAUTA Bloomberg that the proposal for a new fund should not add more complexity to the system.
“This dynamic makes it easier for the advisor to have information that allows him to anticipate movements in the prices of assets in which he could take a position of his own or in the interest of related third parties, and thus obtain returns,” says the Central Bank report.
This would be one way in which the “advisor” recommending the handover can make a profit by gaining followers for your suggestion.
Economy
The Central Bank increased the limits for alternative assets of multifunds A, B, C and D. In the industry they value the decision because it allows for better long-term returns.
… and affiliates lose
What about contributors? “What we know from all the evidence and all the theory is that beating the market systematically is practically impossible,” said Minister Briones, referring to being able to move to a fund before its value rises (to take advantage of the rise. ) and exit before it drops (to avoid loss).
The authority alluded to the Superintendency of Pensions report on the changes in funds, “which indicates that three out of four affiliates who make this game go backwards.”
The regulator’s analysis reveals that in 2018 and 2019 there were peaks of transfers: almost two million changes and almost 30% of the value of the funds. Most transfers in this period, both in quantity and amounts, are from fund A to fund type E, and vice versa.
Economy
The government faces the dilemma between advancing its pension project or proposing a “short law”, which could increase pressure to touch pension funds.
Concludes that more than 70% of the affiliates that have moved from the fund in the period between March 2014 and January 2020 have performed worse than if they had stayed in their original fund or in the default strategy. This strategy is the one that transfers people from the riskiest funds to the most conservative ones as they have fewer years to retire.
Even the ones that don’t change
But that is not all. In his speech, Mario Marcel pointed out that Abrupt and coordinated changes of affiliates between multi-funds force AFPs to increase their investments in more liquid instruments (which can be traded more easily in the event of a change of the contributor to another fund). But this has a major disadvantage: liquid assets, by definition, have a lower relative return.
Thus, massive transfers end up affecting all participants in the fund.
Economy
The government faces the dilemma between advancing its pension project or proposing a “short law”, which could increase pressure to touch pension funds.
The study manager of the AFP Association, Roberto Fuentes, details that the studies of the authority have shown “that thousands of affiliates to the pension system have been harmed in their profitability” and that those who do not change are equally affected because “they obtain lower returns in the long term, given the need to managers maintain, more than recommended, liquid financial securities that are less profitable. “
Economy
People who contributed early, and for more than 35 years, today receive an average pension of almost $ 600 thousand a month.
He adds that the prices of the financial markets are altered in periods of massive changes, generating “problems in financial stability and transfers of unwanted wealth to people and financial agents.”
For this reason, the union insists on regulating the fund’s choice by the contributors and also regulating these companies, demanding “guarantee tickets for any damages to their advisers,” among other adjustments.
