KPMG has recorded nine consecutive years of growth in fiduciary management. There’s been an increase in smaller mandates and more bespoke mandates, but only a relatively small number were advised by an independent third party. What is the attraction of fiduciary management?

Hannah Simons: It allows trustees to ensure that somebody on their behalf is making investment decisions every single day and making them in a framework based around the funding level. Tim Banks: Virtually all schemes have a business plan setting out their specific objectives. We take this a stage further in fiduciary management and codify those objectives, risk parameters and restrictions in a legal agreement. It’s very clear that you’re putting someone on risk for managing your assets against your liabilities. Also irrespective of each individual scheme’s size, all benefit from the scale of the fiduciary operation. That gives enormous economies of scale in terms of what and how you’re able to implement. Then in terms of utilising the full investment opportunity set, we often find with trustees it’s a confidence issue, and that a fiduciary relationship can help overcome those fears. Alison Bostock: It’s the speed of decision making. By the time somebody has brought you the new idea, by the time you’ve educated the trustees, they’ve understood it properly and then started to do it, the opportunity is missed. That’s relevant in all markets but particularly now where it seems so difficult to find return and you need more esoteric and unusual things to find that return. Mike Roberts: With lay trustee bodies there can definitely be an element of decision making constipation which can prevent them actually making decisions and thinking so hard, they just miss the opportunity. Alan Pickering: That’s an unfair generalisation because there are some trustee boards that are either wholly composed of lay trustees or which have a professional trustee as part of a mix and they can move quite quickly. Where companies have decided they don’t want to resource their trustee board to a level that allows them to do lots of stuff then delegation makes sense. Celene Lee: You often hear trustee bodies saying, “Go into fiduciary management because you have only got 16 hours a year to look after investment matters.” But if you haven’t got someone who’s driving the agenda for the trustee board or enough interest or enough availability to make it happen, you’re not going to solve that problem by adopting an FM mandate, because ultimately somebody still has to make the decision. By going into fiduciary management the trustees don’t release themselves of the responsibility of the overall management of the pension scheme. Banks: Fiduciary has grown to a point where the technology, the expertise and the scale all support a level of flexibility that allows trustees to delegate only those decisions to the extent they wish to. This is no longer a cookie cutter, one-size-fits-all service. If we look at de-risking activity over the past year, we took 85 opportunities to de-risk those clients that are on a de-risking journey plan. Those market-driven opportunities sometimes exist for only one or a handful of days. Often clients don’t have the kind of governance structure that allows them to take advantage of those opportunities. Simons: We have seen larger pension schemes achieve this through effectively building their own fiduciary management operation in-house. In this situation you still have to have a governing executive setting out that long-term journey plan, their aspirations. It’s then the delivery of these aspirations that you’re effectively delegating. Pickering: It’s really important that the fiduciary managers do understand they might not be wanted forever and we might want to bring the responsibilities back in-house. So a differentiator may well be the willingness and ability of delegated managers to provide you with an easy exit route that doesn’t torpedo their business model, but allows you to mix and match externalisation and internal delegation. Roberts: Do we have examples of exiting from fiduciary and what that looks like? I’ve not seen that yet. Lee: There is a risk that clients who have gone into a fiduciary management arrangement, and find they’re not getting what they thought they were, could find it hard to exit. At the end a full fiduciary arrangement means having all the assets with one provider and it is important to bear in mind that you may want to reverse your decision so an exit plan is equally as important. They  need to think about how they can effectively insource and outsource over an entire lifetime of a pension scheme and not just five to 10 years. Pickering: Businesses need to learn from elsewhere within their operations how have other forms of subcontracting and delegation worked and what sort of escape routes have they negotiated in their nonpension delegation contract. Bostock:  It’s going to be quite unlikely that people who’ve opted for the fiduciary route then undo it. Once you’ve chosen one and even if it’s running beautifully against your liabilities and you’re improving your funding level, there’s always that nagging question in your mind of wondering if the other lot would have done it better. The answer is you’ll never know because you can’t get those comparisons because it’s all bespoke to your liabilities. Simons: Perhaps more so if they ‘sleep-walked’ into a fiduciary manager arrangement. The comfort isn’t the same as someone who undertakes a full market review, using an independent organisation to help them select the right fiduciary provider.