Return
to Tender
Five key takeaways from Professional Pensions’ research into what trustees think about the CMA’s fiduciary management review
In December 2018, the Competition and Markets Authority published the findings of its review into the UK’s investment consultancy and fiduciary management markets.
Fiduciary management (FM) serves the growing need among many pension schemes trustees to outsource aspects of their schemes’ management, and it has been growing in popularity for a number of years – in fact, total revenue for the service more than quadrupled between 2011 and 2018.
However, in spite of its growth in popularity, the CMA’s review found that the process for appointing a fiduciary manager can be anything but clear. With the remedies proposed in the review set to become law in 2020, Professional Pensions conducted a piece of industry research (sponsored by Goldman Sachs Asset Management) into what 107 trustees of defined benefit schemes think of the changes being introduced.
82%
80%
Trustees' biggest concern is the lack of fees and performance transparency
Of trustees said the lack of clarity on fees was concerning
(43% were very concerned)
Said the same of the lack of investment performance transparency
(36% were very concerned)
The CMA’s review found that fiduciary management services fees are often bundled together with the underlying asset management fees, and similarly that fiduciary manager performance is often reported on a ‘gross of fees’ basis. This hinders trustees trying to assess and compare the value offered by different providers.
Of the five main problems identified by the CMA in its review, there were two that trustees said that they were most concerned by.
4
3
Trustees support the CMA’s remedies – mainly those aimed at fiduciary providers
Trustees tell us that they broadly support all of the CMA’s remedies,
though some receive a warmer welcome than others.
Fee transparency for prospective customers
Separation of FM marketing and IC advice
Standardised performance reporting criteria
2
45%
78%
Trustees are too reliant on their scheme’s investment consultant
Of schemes which use fiduciary management bought it from their existing investment consultant – in most cases even after conducting a tender process
Of trustees said that their main source of information on the CMA’s review was their scheme’s investment consultant
One of the CMA’s main concerns was the competitive advantage of investment consultants (IC) selling fiduciary services to their existing consultancy clients, and the findings of our research certainly support the validity of this concern.
1
“The pension industry was in need of an official review into the way that pension schemes procure their fiduciary managers”
67%
Trustees overwhelmingly support
the CMA’s review
Of trustees agreed (31% strongly) with the following statement:
Trustees gave many reasons for their support, such as schemes’ tendency not to tender, difficulties comparing fiduciary managers, a lack of procurement guidance for schemes, and instances of schemes sleepwalking into using the fiduciary management offering of their existing consultant.
5
36%
12%
Mandatory tendering may put off some trustees from using fiduciary management
Of respondents said they would be less likely to consider using fiduciary management in future
(11% definitely so)
Were unsure
Running a tender process can be costly, particularly for smaller schemes – in fact, schemes with under £200m in assets were twice as likely to describe mandatory tendering a “massive” or “large” burden compared to those with over £2b in asset. And many in our study felt that being forced to retender an existing mandate for the sake of it was needless and counterproductive.
Although the CMA’s two remedies around mandatory tendering were supported by the majority of trustees in our survey, we also found that it may have unintended and indeed negative consequences for some.
Five key takeaways from the research
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They are less supportive of those measures which place the burden on the scheme, such as mandatory tendering. This suggests that trustees see it as the provider’s responsibility to improve things more than pension schemes’.
3
2
1
They are most supportive of those remedies which place the burden for change on the fiduciary management provider – measures like increasing cost and performance transparency, and separating fiduciary management marketing from advice.
Fee disaggregation for current customers
Mandatory first time competitive tenders
TPR tendering guidance
6
5
4
Compulsory retendering of
certain mandates
7
