Primed or prejudiced: Are trustees listening to experts?

One after another in the lead-up to the referendum, institutions from the Bank of England and Institute of Fiscal Studies to the International Monetary Fund, came forward to warn the United Kingdom of the economic fallout that would follow Brexit.

And yet, for all the weight and authority of the remain campaign, the population opted out.

Conservative MP Michael Gove’s claim that “people in this country have had enough of experts” has been validated more decisively than any of us might have imagined this time last week.

But could expert advice be taking a backseat to emotional responses in other important decisions – such as those made by pension scheme trustee boards?

“It’s fair to say that intuitive thinking is often at play, much more than analytical thinking,” said David Archer, director at professional trustee company PTL.

Archer stated that everyone involved in decision-making on trustee boards will bring both conscious and subconscious biases to the table, which is “a risk that trustees need to guard themselves against”.

Making sure schemes have well-balanced trustee bodies, composed of employer and member representatives that are receptive to the guidance of advisers and good independent trustees, is vital to ensuring decisions are not based purely on intuition, Archer said.

Archer stressed that scheme trustees should only make investment decisions they fully understand, basing such choices on a long-term view with expert advice.

“When there’s a weighting of lay trustees, [there is probably] a bias towards more straightforward investment classes,” he said.

Paper trail protection

Anne-Marie Winton, partner at Arc Pensions Law, said that while she could see how trustees might be lured away from heeding the advice of an expert, “we have a pretty good system in the UK of educating and informing trustees”.

A large volume of good information is publicly available, said Winton. However, a mass of material awaits trustees who look beyond official sources such as the Department for Work and Pensions and industry experts.

Winton said: “I don’t think I really want [tabloid] headlines directing how pension trustees choose to invest.”

Yet non-expert information can still help promote healthy debate on trustee boards, Winton said. “As long as it’s always clear that it’s okay to ask questions – it’s okay to say, ‘I have read something somewhere else, can you explain to me why I shouldn’t be following that particular view?’”

She added that the administrative requirements on trustees test how robust their reasoning is.

She said that a trustee saying, “‘Oh I read it in a free sheet somewhere, or I saw it on TV’, that’s not going to be good enough to stand the test of time because trustees can be held to account for years after their decisions”.

Healthy debate

Barry Mack, client director at Muse Advisory, agreed that debate between trustees and advisers is important.

“It’s healthy to believe that experts can be wrong,” he said, adding that “advisers aren’t always right, but that doesn’t mean you shouldn’t call upon their experience”.

Mack stated that if he was aware of trustees acting against an adviser, his first step would be to establish their scheme’s goals.

“Trustees need to actually manage their advisers against the objectives that they want to achieve.”

He said that checking that an adviser has assessed alternative views, the risks of their own advice and the extent to which they are relying on past events will also improve the debate.