Last week I chaired a roundtable on the subject of fiduciary management. The idea of outsourcing some or all investment decisions is extremely appealing to many trustees, with research by KPMG suggesting the market has grown by 40% since 2011 in terms of assets under management, with some £23bn in scheme assets under full fiduciary management and another £30bn under a partially delegated basis.
But despite its rapid rise in popularity, a surprisingly high level of confusion and uncertainty remains. One of the key causes for this muddle is in the many names used: at the last count trustees could opt for fiduciary management, implemented consulting, delegated consulting, delegated de-risking, solvency management, a delegated CIO and more, all of them providing essentially the same service.
I once spoke about this with Anton van Nunen, the man widely regarded as “the father of fiduciary management”. He said he now wished he’d come up with a better term as it wasn’t clear enough. When I asked if he had an alternative in mind, he wisely declined to suggest one, fearful yet another moniker could be unleashed upon unsuspecting trustees.
Another major issue discussed at the roundtable was the rise of implemented consulting. Interestingly, around eight in 10 full delegation mandates are worth less than £250m, with implemented consultants managing 80% of these appointments.
The concern for many is that if a consultant begins offering additional investment services, many of their smaller clients are simply sticking with the firm without comparing them to other providers in the market. You could argue that extending that existing relationship makes sense, but not before you’ve seen what else is available; being a good consultant is a world away from being a good money manager, after all.
It would be seen as poor practice were a trustee to hire a fund manager without holding an open tender process first, but such appointments are common in the world of implemented consulting. According to consultant Hymans Robertson, just 5% of schemes selecting a fiduciary manager last year used a third party monitoring service, compared with 80% in the Netherlands, where the strategy was devised.
This clearly needs to change and the process should start from the top. I am reluctant to wish yet more regulation onto pension schemes, but at the very minimum best practice guidance from The Pensions Regulator is needed before the inevitable happens. No one is suggesting that consultants cannot or should not do the job, but they must be asked to show they can do so as well as their peers.
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