Presenting
Is fiduciary management aligned with the end goals of pension schemes?
One clear result of the Competition and Markets Authority’s (CMA) review of fiduciary management has been a reduction in overall fees and to persuade trustees to fully consider what they are getting and need from their fiduciary manager. For many respondents to this survey, fiduciary management appears to be a solution to help bridge the gap to full funding. While that objective may still be some way off, the Pensions Regulator’s (TPR) defined benefit (DB) funding code will soon require trustees to set a long-term objective.
Foreword
There are a number of key principles outlined by TPR, which we broadly summarise as:
Schemes should progressively reduce their reliance on the sponsor covenant to reach a position of “low dependency”.
“Low dependency” investments should be highly resilient to risk by the time the Scheme is significantly mature.
The investment strategy should have sufficient security, sufficient quality and be able to satisfy expected liquidity requirements with reasonable allowance for unexpected cashflows.
In most cases, the long-term objective will be a transfer to an insurer, or self-sufficiency (or indeed self-sufficiency as an interim step prior to a buyout). With the destination known, what does a fiduciary management relationship look like in the end-game? How should the portfolio evolve through time and what services do trustees require of their fiduciary manager when the portfolio is largely de-risked?
Executive summary
•
Two years after the Competition and Markets Authority (CMA) issued its final recommendations for the fiduciary management sector, the sector is beginning to demonstrate evidence of change. For the first time in a Professional Pensions survey, trustees rated a fiduciary manager’s investment expertise as more important than strategic advice, which may reflect a shift in how trustees approach oversight in the wake of the CMA’s review. (see Deciding factors)
As the defined benefit sector matures, trustee boards and their fiduciary managers will be having to think about and plan journeys towards endgames. Those aiming for an insurance buyout are more likely to be using a fiduciary manager to get them there. (see Fiduciary management users: Who, how, and why?)
However, fee models have yet to change to reflect the journey ahead. The survey found that 45% of trustees had not discussed changing fee levels with their fiduciary provider in light of their journey plan. As a DB scheme approaches its ultimate objective, its investment strategy and asset allocation can change significantly, meaning a flexible fee model can reflect the changing nature of the investment strategy. (see Paving the way to the endgame)
The heritage of a fiduciary provider – whether it is owned by an asset manager, consultant, or is independent – was cited as an important factor for trustees to consider during the selection process. Independent or asset manager-owned providers have taken some market share from the traditionally dominant consultancy-backed fiduciary providers, but there has not been a significant shift. (see Types of fiduciary manager)
Asset manager-owned fiduciary managers tend to be investment specialists, with strong asset allocation capabilities and the ability to make and enact decisions quicker. That said, a significant proportion of schemes using such providers reported also making use of their investment consultancy ability. This indicates that trustee boards still have a strong appetite for bundled services. (see Types of fiduciary manager)
01
02
03
04
05
Paving the way to the endgame
Chapter Two
Deciding factors
Chapter Three
Types of fiduciary manager
Chapter Four
Looking to the future
Conclusion
45
of trustees had not discussed changing fee levels with their fiduciary provider
%
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, BMO
By
James Edwards
Global Asset Management
Fiduciary management users: Who, how, and why?
Chapter One
This report contains a wealth of information for trustees to help them consider these issues as they begin to consider their long-term objectives and end-game. We hope you enjoy the report.
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Introduction
Where do trustees think smaller schemes are most disadvantaged?
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What is your scheme’s ultimate end goal when it comes to settling its liabilities?
1 Source: ‘Latest trends in Fiduciary Management – 2021 Isio UK Survey’, November 2021.
Insurance buyout
Self-sufficiency
Other
20%
40%
60%
80%
0
Schemes less than £100m
Schemes from £100m to £500m
Schemes of £500m and over
The fiduciary management (FM) sector is undergoing a significant shift. Since the CMA published its final report and recommendations for the sector in June 2019, there has been a notable increase in retendering activity. More than 580 formal tenders were recorded in 2021 by consultancy group Isio in its annual FM sector survey, up from 125 the previous year. Of these, the majority (86%) did not result in a change of manager, but this masks some significant changes happening below the surface – especially on fees (see Paving the way to the endgame). Professional Pensions surveyed a mix of 104 pension scheme trustees, with a near equal split between fiduciary clients and non-users, to gain insight into how attitudes towards and the use of these services have changed in the two years since the CMA’s review.
The results indicate that schemes could be using FM as a bridge to full funding: almost three quarters (73%) of schemes not using a fiduciary manager are more than 90% funded, compared to 57% of users. It’s important to note that our sample may not be fully demonstrative of the DB pensions universe. For example, Aon’s latest risk settlement survey found that just over a third (34%) of pension schemes were targeting buyout. This discrepancy is likely due to our survey’s deliberate balancing in sample size between organisations that are using fiduciary management and those that are not – something that is not reflective of the overall market, where schemes using fiduciary management are a minority. We deliberately balanced the sample size so we could more accurately correlate findings and so discern differences between the two groups – and indeed we found some sharp disconnects.
The role of the regulator
Outside of the CMA review, one of the biggest regulatory changes for UK pension schemes in the past three years has been TPR’s revamped approach to DB scheme funding. More and more pension schemes are closing their doors. As of 2020, 47% of private sector DB schemes had closed to new members and future accrual, while another 40% had closed to new members. In response to this increasing maturity of DB pensions, the regulator has urged trustees to set a long-term journey plan for their schemes with a specific endgame in mind. For most, this is either self-sufficiency with minimal funding reliance on the sponsoring employer, or a buyout with an insurer. Graham Jung, a professional trustee at Ross Trustees, highlights that this endgame focus could mean that the role of fiduciary managers has “changed and evolved”, implying a different approach will be needed towards the end of a scheme’s journey. In the next chapter, we will explore how trustees are approaching the endgame concept, and the role of fiduciary managers in these journeys.
2 Source: ‘Aon’s Risk Settlement Survey 2021 – Journey to Settlement’, June 2021.
3 Source: TPR, ‘Annual landscape report on defined benefit and hybrid schemes 2020’, March 2021.
47
of private sector DB schemes had closed to new members and future accrual
What is your scheme's current funding level?
Above 90%
Non users
FM users
57
Below 90%
Schemes using FM are slightly more likely to be heading towards buyout, the survey shows, with 49% targeting an insurance transaction, compared with 45% of schemes that do not use a fiduciary. Smaller pension schemes – those with less than £100m in assets – are more likely to be targeting self-sufficiency (62%, versus 39% aiming for an insurance transaction). This reflects similar findings from other Professional Pensions scheme surveys, and could reflect a belief that the insurance option is not as accessible for the |smallest schemes.
73
44
27
1
2
3
Trustee boards are starting to establish journey plans for their schemes in accordance with TPR’s expectations. What role does FM play in helping schemes along this journey to the endgame?
Peter Daniels, Partner and Head of Fiduciary Management at Barnett Waddingham, says the increase in tendering activity has provided “a really healthy increase in competition, which can reduce fees”, as well as accelerating some discussions on areas such as strategy. “The majority of tender exercises we were involved with over the past year or so have accelerated strategy discussions and helped trustees think about the real long term. What’s the endgame, and how is the fiduciary manager’s mandate set up to deliver against that? In many cases, the tender exercise will have led to tweaks to mandates to reflect a focus on achieving that long-term target.”
Picking a path
How many years’ away is your scheme’s envisioned end-game?
Self-sufficiency is, on average, seen as a longer-term target than an insurance transaction. Those targeting buyout should take a more realistic view of timeframes, however, according to Graham Jung.
That said, research by Aon indicates that some schemes may be closer to an insurance transaction than trustees realise. It found that more than three quarters of schemes are over 80% funded, but just 26% expected to reach their endgame in the next five years. It is worth noting, however, that surveys conducted by consultants are usually polls of their customer data, which can introduce other factors that influence the headline finding, such as the use of consultant-owned fiduciary managers. Our respondents, while demonstrating a similar overall funding position, are more confident of reaching their goals – albeit within their own timeframes, rather than an arbitrary five-year deadline.
“Buyout may well be the ambition for the majority [of] schemes, but most are quite a long way off,” he says. “I think we have to expect that quite a lot of schemes will move to a position of what the regulator would call ‘low dependency’, or self-sufficiency, before then going to a buyout later.”
5 years or less
6 – 10 years
11 – 15 years
16 – 20 years
More than 20 years
40
20
80
60
Self- sufficiency
Insurance Buyout
Percent (%)
Haven’t decided
Don’t know
4 Source: ‘Aon’s Risk Settlement Survey 2021 – Journey to Settlement’, June 2021.
How likely is your scheme to meet its endgame in the period you specified?
Fiduciary managers can use their scale to drive down investment costs and give smaller schemes access to asset classes they might otherwise struggle to buy, such as infrastructure. These are two key benefits of appointing a fiduciary manager, according to respondents (see next chapter). However, when it comes to securing an insurance buyout, having a fiduciary manager in charge of scheme assets may not be a particular advantage, according to Peter Daniels. “It could be an area in which a fiduciary manager seeks to add value, but ultimately a big dose of this is down to the insurers’ individual appetite,” he says. For smaller schemes, a successful buyout will still depend on other factors, including data quality and the insurer’s willingness to handle small transactions. Those targeting the insurance sector are not only more likely to be using a fiduciary manager to get them there, but they are also more likely to be employing a professional trustee. More than a half (56%) of buyout-focused schemes already have a professional trustee on their boards, compared to 39% of those aiming for self-sufficiency.
Very likely
Somewhat likely
Unsure
Somewhat unlikely
Very unlikely
FM Users
Non-users
Is your scheme using or considering using any of the following specialists to get it to its end goal?
Fiduciary management
Professional trustee
Already using
Currently being on-boarded
Currently considering/ would consider
Would not consider
Targeting buyout
Targeting self-sufficiency
Graham Jung says schemes can benefit from a “wider view” offered by a third party, whether it is an independent adviser, lawyer, actuary, or professional trustee. “Without that [input] you end up doing more of what you're already doing, which is staying with the fiduciary mandate you've had for a while. It has probably done quite a good job historically, but it's not set in stone. You need to look forward and consider all the options available to you."
“Without that [input] you end up doing more of what you’re already doing, which is staying with the fiduciary mandate you've had for a while.”
at Ross Trustees
Additionally, trustees can gain extra insight by engaging with asset managers. These organisations are much closer to investee companies and other assets that make up portfolios, and have a much more detailed understanding of market dynamics. This can help with issues concerning portfolio construction, especially when planning a path from growth assets towards liability-driven investment and ultimately a matching portfolio suitable for transfer to an insurer.
As pension schemes approach their endgames, risk management becomes more and more important. The management of costs should also factor into this – paying too much for a service is a risk, after all.
Rethinking costs
“The CMA can pat themselves on the back for tackling at least some of the value for money questions that were out there.”
Post-CMA retenders have often resulted in lower fees. According to EY, the average cost of FM fell by 10% in 2021 compared with the previous year, and by 20-30% since 2013. Isio’s survey shows smaller schemes have been beneficiaries of fee reductions: those with less then £100m in assets saw average FM fees drop from 28 basis points to 26bps. Graham Jung says almost every retender he has seen as resulted in a fee reduction of some kind.
Ross Trustees.
5 Source: EY, ‘2021 Fiduciary management fees survey’, July 2021..
6 Source: ‘Latest trends in Fiduciary Management – 2021 Isio UK Survey’, November 2021.
of trustees said they had not discussed this with their fiduciary provider – perhaps because for an underfunded scheme, the endgame is a long way off.
Trustees should be thinking about how to manage costs during the scheme’s journey, and a flexible fee model for FM can form part of this. As a scheme approaches full funding, its asset allocation will change, favouring liability-matching assets such as government bonds and investment grade corporate bonds. Government bonds are typically cheaper to hold and trade than growth-seeking assets, particularly when building a buy-and-maintain portfolio, so investment management fees should be able to reflect this shift. As Peter Daniels explains: “Once you’ve largely de-risked your portfolio, the complexity and the required sophistication from an investment strategy can be much less. The opportunity for a fiduciary manager to add value [through investment strategy] is also less, and therefore the price that a trustee board should be willing to pay should reduce commensurately.” However, 45% of trustees said they had not discussed this with their fiduciary provider – perhaps because for an underfunded scheme, the endgame is a long way off. A further quarter said they were set to pay a flat fee, while 20% said fees were linked to asset performance.
In the past, Peter Daniels continues, fiduciary managers were able to offer pensions schemes competitive pricing on growth-oriented portfolios by negotiating discounts with the underlying managers. "once you take those return-seeking assets out of the equation, and therefore the discounts, how does it become economic? That's a challenge the whole of the industry faces." As a DB scheme approaches its ultimate objective, its investment strategy and asset allocation can change significantly. Ensuring the fiduciary manager remains aligned with the scheme’s journey plan is crucial – and trustees should not be afraid to ring the changes if necessary to keep on track. “The big challenge is coming up with the right sort of FM arrangements for the next 10 years, which may be the last 10 years of a scheme’s life, rather than what it has needed for the past 10 years,” says Graham Jung. With formal tenders now part of ‘business as usual’ for fiduciary managers, understanding how trustees approach these processes is important. The next chapter explores how trustees consider tenders, the perceived complexity of the fiduciary sector, and what they value most about a fiduciary provider.
Select a scheme to view
Select a group to view
Of those schemes targeting self-sufficiency, 43% said they felt it "very likely" their schemes would hit their desired timeframe, while 63% of those aiming buyout said the same. FM users seem marginally more confident in reaching their endgame within their envisaged timeframe.
Graham Jung, Trustee Director
,
Graham Jung, professional trustee,
4
5
6
Selecting the right fiduciary provider is essential to success – particularly as schemes’ priorities change and journey plans are enacted. The formalisation of the tender process through the CMA’s ruling has increased the burden on trustee boards and fiduciary providers. As a result, what questions are trustees asking potential providers, and what are their concerns?
What do schemes want?
For the first time in a Professional Pensions survey, trustees rated a fiduciary manager’s investment expertise as more important than strategic advice – arguably giving asset managers an advantage.
Risk settlement expertise
Ability to tailor a bespoke endgame strategy
Portfolio construction
Strategic advice
Investment implementation expertise
25
50
75
Percentage (%)
What skills and strengths does a fiduciary manager need to help schemes towards their endgames? (Multiple selection)
Fiduciary manager’s track record of growth
Fiduciary manager’s track record of de-risking
The heritage of the FM provider – owned by a consultancy, an asset manager, or independent
Fiduciary manager’s track record of generating cash flow
Fiduciary manager’s track record of taking schemes to buyout
The change may also reflect a shift in how trustees approach the oversight of their fiduciary managers. The CMA was clear about trustees’ responsibilities when appointing an external provider – it is no longer appropriate to ‘set and forget’. Many trustee boards have shifted from a triennial fiduciary review cycle – aligned with schemes’ formal actuarial valuation – towards annual or even quarterly reviews of fiduciary managers. These typically focus on the manager’s performance in line with its mandate, and the delivery of value through decision-making. Being able to demonstrate a track record of growth delivered for clients is the most important factor considered when choosing fiduciary managers, according to our survey. Three in five respondents (59%) cited a fiduciary manager’s track record of growth as a criterion, marginally ahead of de-risking track record and the provider’s heritage (57%).
This suggests – albeit not overtly – that trustee boards are starting to separate out these two functions in the wake of the CMA’s review.
Which of these criteria did you consider when selecting your current FM provider?
Pros and cons
Speed, efficiency, and governance of investment decision making are the main advantages to using a fiduciary manager, survey respondents believe. When split out by users and non-users of fiduciary managers, it becomes clear that these elements are key benefits valued by those using such a service.
30%
10%
0%
Count
FM user
Improving scheme’s level of investment governance
Allows trustees to keep control over non-investment related aspects of scheme governance
Consolidation allows access to asset classes we’d be too small to invest in otherwise
Consolidation options like fiduciary management are cheaper than a buy out
Increase speed of asset allocation decisions
Ability to monitor buyout market for the right price
Increase speed of investment management decisions
Facilitate the inclusion of more complex asset classes/strategies
45%
15%
Improve liability/risk management
Access to new asset classes
50%
Don't know
For those that do not use fiduciary services, they are more likely to be put off by the perception of conflicts of interest between the pension scheme and the provider. The lack of a guarantee of better outcomes is also a sticking point for non-users, as is the perceived lack of control over investment governance.
What are the main advantages of using a fiduciary manager to help achieve an endgame?
FM users vs Non users
What are the potential disadvantages to schemes of using a fiduciary manager to help them move towards their endgame?
Segmentation - FM users vs Non users
Conflicts of interest between scheme’s interests and FM’s interests
Lack of guarantee of better outcomes compared to not using FM
Lack of control over investment governance
Low value for money
Fiduciary management is an untested solution when it comes to winding up schemes
FM users are more positive than non-users towards the service. While this is perhaps to be expected, the difference also suggests that user experience outstripped initial expectations. Importantly, FM users are overall very confident that their provider will help them reach their endgame. There were some significant differences of opinion between those using FM and those not. FM users, for example, are three times as likely to see the service as delivering an improvement to their liability or risk management. They are also nearly twice as likely to value the increased speed of asset allocation decisions offered by FM providers. The survey also showed that FM users were very unlikely to answer “don’t know”. This illustrates that, having explored their options and generated real-world experience through working with a fiduciary manager, they are more confident of the outcome.
30
10
7
8
9
1 = Not at all confident
10 = Extremely Confident
How confident are you that your fiduciary manager will be able to deliver on your scheme's end goal?
Assessing the options
Respondents cited complexity and difficulties in comparing different providers as additional barriers. However, several highlighted that using an external adviser or specialist to assist with the tender process and appointment had proven helpful in navigating such complexities and differentiating between offerings. André Kerr, Partner and Head of Fiduciary Management Oversight at XPS Pensions Group, questions whether trustees are able to challenge their fiduciary provider effectively. “Generally, the fiduciary manager will be [demonstrating] their superior knowledge and understanding to the trustees,” he explains. This may require a third-party adviser to help trustees understand the issues and challenge the provider, but generally asset management-owned fiduciary managers will have more specialist investment expertise than consultant-owned providers.
Graham Jung argues that there is not much difference between the investment offerings from different fiduciary providers. "There's a lot of marketing positioning around service and brand, but less focus on differentiating between investment approaches and outcomes. Every fiduciary manager will hedge the liabilities to the funding level, plus or minus, and they'll have a portfolio which will be diversified to some extent, with a lot of the returns coming from equities and illiquid longer-term assets." This creates an issue as growth becomes less of a priority – the nature of the mandate will change, and trustees need to engage with their fiduciary manager to ensure this is understood and reflected sufficiently in strategy and fees. In addition, a relatively benign investment environment up until the onset of the pandemic has served many investors well. Now, however, yields on most investment grade fixed income bonds are at or near record lows, and developed equity markets are also pushing record levels. With inflation increasing, and interest rates with it, a new investment environment will put fiduciary managers to the test like never before.
ESG and sustainability
This year, the government and regulators have been clear that they want investors to take the lead on ESG issues, reporting regularly on topics and data points surrounding climate change and sustainability. For fiduciary managers, pooling multiple pension scheme clients together presents an additional difficulty when trying to address varying requirements. This may require pension schemes to compromise on their investment beliefs in order to hire their preferred provider.
A significant proportion of trustees indicated that it was difficult to evaluate and compare fiduciary providers as they tend to look similar on the surface. Half of all respondents agreed “strongly” or “somewhat” with this idea.
Another area in which regulation is influencing asset owners and managers is environmental, social and governance (ESG) themed investing.
7 See: ‘Pension scheme investments and climate change’, House of Commons Library, October 2021.
8 See: ‘Draft guidance on governance and reporting of climate-related risks and opportunities’, The Pensions Regulator, June 2021.
André Kerr says this demonstrates that FM providers “need to be held to a higher bar” on ESG issues, and “need to be leading the field more than, say, the traditional investment consultant market.” Peter Daniels agrees that, through asset allocation and manager selection decisions, fiduciary managers can “help to move the dial” on ESG and sustainability issues. Asset managers not taking these matters seriously can find themselves losing substantial FM business. “It’s important that they use that influence to its full effect,” he says. “Fiduciary managers can get fee reductions because they’ve got a lot of influence with managers because of the size of their client base. If you can get good fee reductions because of that influence, you can also change behaviour around things like ESG and diversity and inclusion through your scale as well.” According to Isio, more than two thirds of FM clients engage with their providers on specific ESG policies, while 14% give general policies and objectives. A further 16% use a bespoke ESG policy such as screening.
9 Source: ‘Latest trends in Fiduciary Management – 2021 Isio UK Survey’, November 2021.
59
cited a fiduciary manager's track record of growth as a criterion
7,8
The CMA’s review posed a challenge to the investment consultant-owned fiduciary managers that have long dominated the FM sector.
Before the investigation, more than 80% of new mandates were awarded without a competitive tender, according to 2014 research by KPMG. The Financial Conduct Authority was particularly concerned about conflicts of interest, as FM was found to be more lucrative than advisory services. Professional Pensions’ own research has backed this up: 45% of schemes using FM when surveyed last year said they had bought the service from their investment consultant, and 78% were reliant on their investment consultant for information about the CMA review. The introduction of mandatory tendering has begun to influence the FM sector, according to our survey and interviewees. Our survey indicates that the heritage of a fiduciary provider – whether it is owned by an asset manager, consultant, or is independent – is an important factor for trustees to consider when selecting an outsourcing partner.
78
were reliant on their investment consultant for information about the CMA review
What is the heritage of your scheme's fiduciary manager?
42
ICFM - their organisation offers investment consultancy services as well as fiduciary management
46
AMFM - their organisation offers asset management services as well as fiduciary management
Pure FM - their organisation specialises in fiduciary management
NB trustees answered in respect of the largest scheme they were engaged with, and the question was only posed to schemes using fiduciary management.
10 Source: 2014 KPMG UK Fiduciary Management Market Survey, November 2014.
11 Source: Financial Conduct Authority, Asset Management Market Study Interim Report, paragraph 8.23, p146, November 2016.
12 ‘Return to Tender’, Professional Pensions/Goldman Sachs Asset Management survey, 2021.
However, this data is not demonstrative of the wider FM sector. Two years on from the CMA’s final report, independent or asset manager-owned providers have taken some market share from the traditionally dominant consultancy-backed fiduciary managers, but there has not been a significant shift. Many schemes still rely on their fiduciary provider for other services, too. Half also purchase investment consulting services, while nearly a third (31%) have the same company as fiduciary and actuary.
13 See: IC Select, ‘Fiduciary Manager Survey’, p8, September 2021.
Do you purchase any other services from your fiduciary management provider?
Investment consultancy
Actuarial services
Administration
Other service(s)
None of the above
Digging down into this data reveals that nearly three quarters of schemes using a fiduciary owned by an investment consultant also use the consultancy service. While asset manager-owned fiduciary managers tend to offer fewer additional services, particularly actuarial advice or administration, a significant proportion (38%) of schemes using such providers reported also making use of their investment consultancy ability.
AMFM
ICFM
ICFM = Investment Consultant Fiduciary Manager
AMFM = Asset Manager Fiduciary Manager
Consultant-owned fiduciary managers often have closer access to additional investment services such as risk settlement and monitoring systems, as well as the strategic advice provided by the consultancy parent. On the other hand, asset managers providing fiduciary services tend to hold more assets directly, meaning that not only is the strategy cheaper than buying third-party funds, but the manager is also able to be more agile when making tactical changes – something our survey demonstrates is highly valued by trustees.
Endgame advantage?
The endgame story for DB schemes could play into the hands of asset manager-owned fiduciary managers, according to Graham Jung. He points out that consultancy-owned providers not only tend to have the extra layer of fees from hiring third-party managers, but they are also often marketed on returns and manager selection.
“Why would I pay for those services from the fiduciary managers… when it’s something the client doesn’t need?”
Ross Trustees
Fiduciary managers clearly have a role to play in pension schemes’ journeys towards their endgame. As the scheme matures, full funding is achieved and the portfolio shifts towards something suitable for insurance transfer or self-sufficiency, it may be less in need of a fiduciary manager. This should be seen as the ultimate goal of these providers – getting a scheme to its end goal.
As schemes de-risk and shift towards lower cost fixed income assets, this growth is less of a priority, as covered in the previous chapter. This poses a challenge to those models set up for growth or breadth of access to asset classes and managers.
of schemes using FM when surveyed last year said they had bought the service from their investment consultant
Graham Jung professional trustee
“The complexity of the portfolio is going to reduce and the need to be always finding the next best investment idea reduces, and it becomes a bit more of a ‘business as usual’, slow-moving, less exciting portfolio to manage.”
11
12
13
As the UK DB sector matures, the kinds of investment strategies needed by pension schemes are changing.
Closed schemes are being encouraged to set a long-term objective such as insurance buyout or self-sufficiency. As such, future FM mandates will have to adapt to holding more investment grade fixed income and similar assets, with less of a focus on more lucrative alpha-seeking strategies. In turn, trustees should use the new mandatory tendering and retendering requirements to rethink what they need from their FM providers. Are they seeking to bridge a funding gap, or are they paving the way to an insurance transaction? Significantly different investment strategies will likely result in different costs – and FM fees should reflect this.
“The CMA process may not have done everything that the Financial Conduct Authority wanted it to, but one thing it has done is persuade people to look at what they’re getting from their fiduciary manager, not just who it is.”
Graham Jung, professional trustee, Ross Trustees
While few mandates have moved from one provider to another so far, the nature of many mandates is changing. Interviewees cite cost as a main element of this change, with the CMA’s investigation having arguably empowered trustee boards to put pressure on providers to justify fees. Trustee boards need to take ownership of their fiduciary management mandates and ensure they are fit for purpose and providing value for money. Our survey indicates that many schemes are already taking positive action in this way.
Chapter 05
