Any other business: "The trouble with life isn't that there is no answer, but that there are so many answers." This quote, attributed to Ruth Benedict, could easily be applied to the world of pensions law, where achieving consensus among lawyers is an almost impossible task.
This can make it difficult to properly evaluate whether or not you are getting good value from your legal team.
Some trustees have taken their eye off the ball in this area, said John Paradise, member-nominated trustee at St Andrew’s Healthcare Pension Scheme, admitting that getting value from its legal team is not something the board he sits on assesses on an ongoing basis.
What you find in some organisations, there’s normally this knee-jerk reaction – so you need to send it to the lawyers
Ian McQuade, Muse Advisory
“Sometimes there’s an assumption that we leave these guys to get on with it,” said Paradise. “It’s one of those things that trustees really don’t pay enough attention to.”
However, in an environment where another new piece of pensions legislation seems just around the corner, getting value for costly fees becomes more important.
Ian McQuade, client director at Muse Advisory, said the most important quality mark of a lawyer is if it is clear what any legislative changes mean to the individual set of trustees.
When this is done well it is usually as a result of a better relationship between the legal team and the board of trustees, he said.
“With trustee boards that I have worked with in the past, they have tended to have some sort of scorecard process,” he said.
This involves having 10 or 12 questions to test how well the scheme's lawyers have explained legislationby checking trustees’ level of understanding.
Pitching information at the right level of complexity is also key to ensuring trustees of all backgrounds understand what is required of them.
Paradise said as a MNT he does not have any background in finance, and he was looking for the ability of advisers to inform the board on new areas. “[For them] to be able to explain something that’s a complex issue in a way that’s comparable.”
When to engage
For trustees, knowing when to and when not to engage with your legal team can be a helpful way to save money.
“What you find in some organisations, there’s normally this knee-jerk reaction – so you need to send it to the lawyers,” said McQuade.
He said trustees could ask their lawyers what decisions they could have made without involving their legal team, as part of a performance assessment process.
However, Marian Elliott, head of trustee advisory at Spence & Partners, said trustees should not always use cost as a marker for value.
“Trustees should be wary of assuming what appears to be most expensive option at the outset is the most expensive option in total,” said Elliot.
Elliott said that when choosing a legal adviser trustees should look for a team that has experience in issues that affect the scheme.
“If there’s legislation around historic benefits issues, are there legal teams that have experience in dealing with that sort of legislation?” she said.
During the tender process, trustees could ask legal advisers how they would deal with that particular issue, Elliott added.
Paradise said the trustee board he sits on decided to switch its legal adviser two years ago and relied a lot on personal recommendations.
“There were several areas [where] we wanted to check they had a good experience in the pensions business,” Paradise added.
Leading the industry debate is not always cost effective. Taking the initiative early in line with legislative changes can also increase costs.
“Normally, if you’re at the front of something then it’s slightly more difficult and it’s likely to cost you more because [there is] a lot more thinking that has to go into it, rather than picking up on what other people have done,” McQuade said.
