Schemes regain faith in fid man evaluators

Of the 235 schemes surveyed, 42 per cent of schemes said they either take or would consider taking advice from a third-party evaluator. In 2016, this figure stood at 34 per cent, down from 44 per cent in 2015.

Fifty-two per cent of surveyed schemes with assets under management between £101m and £1bn now employ fiduciary managers. This is up from 48 per cent in 2016.

Encourage fiduciary managers to educate

The report by consultancy Aon Hewitt cites growing complexity and time constraints as key drivers for schemes who are investigating fiduciary management options.

This includes the selection of fiduciary providers. Sion Cole, senior partner and head of European distribution at Aon Hewitt, said that long-term trends suggest a “plateau” in the use of third-party evaluators.

“Some trustee boards are recommending that they don’t have the expertise to address the fiduciary management landscape,” Cole said.

The report suggests an inflation in perceived disadvantages over the use of fiduciary management. Sixty-eight per cent of respondents recognised the potential for difficulty in comparing providers, while 54 per cent of fiduciary clients experienced this first-hand.

“What fiduciary managers probably haven’t done as well as they could have done is educate trustees,” Cole said.

Is LDI responsible?

The survey cites increases in liability-driven investment and the associated complexities of the investment approach as key to the rise in fiduciary management.

Ben Gold, head of pension investment, north, at consultancy Xafinity, disagreed with this theory.

“I think [LDI] is well-established and used by many schemes and has been for some time, so I don’t see that as a current driver for moving into fiduciary management.”

Gold is more sympathetic to the report’s view that geopolitical and economic instability has also pushed trustees into the arms of fiduciary managers.

“Volatile markets require some navigation by pension scheme trustees. If they have governance challenges, it brings them home,” he said.*

But although some trustees recognise when they are having governance problems, "it’s not the only [reason] that might be to move to fiduciary management”, he added.

Should markets calm down, Gold anticipated a slowdown in the trend towards the adoption of fiduciary management.

Is there a conflict of interest?

Regulators and experts have raised concerns over conflict of interest emanating from fiduciary management arrangements. Thirty-six per cent of respondents placed conflicts of interest as their key concern, which ranked third behind cost and the difficulty of provider comparison.

Alan Pickering, chairman of professional trustee company BESTrustees, maintained that schemes should be attentive to the potential of a conflict.

Any subcontracted professional adviser should make their clients aware of the whole range of services available, which in itself would not constitute a conflict of interest, according to Pickering.

“As a trustee I’m often frustrated that an incumbent adviser doesn’t make me aware of what’s on offer,” he said.

“However, I do personally believe that while one is contemplating such a degree of delegation you should take advice from someone who hasn’t got a vested interested in the implementation of that delegation.”

Pickering said he has himself sought guidance from third parties, such as auditors and lawyers, as to the merits of entering into a fiduciary management contract.

He said where there were concerns over a conflict, this led to some further delegation to the scheme’s investment consultant, but stopped short of fully-fledged fiduciary management.

*This quote was updated to correct an earlier inaccuracy