The professional trustee sector is becoming increasingly concentrated as it matures, according to new research from LCP.
The consultancy’s annual study of the professional trustee industry found that approximately 80% of assets overseen by professional trustee firms are managed by four companies: BESTrustees, Capital Cranfield, Independent Governance Group (IGG), and Law Debenture.
The report also found that more than half of the 226 new professional trustee appointments recorded since April last year have gone to just four firms: Dalriada, IGG, Law Debenture, and Zedra.
The report stated: “The concentration of new appointments to fewer firms reflects the challenge for smaller or new entrants in gaining traction in an increasingly competitive and maturing market.”
However, LCP also highlighted new entrants Falcon Trustees and Aretas as examples of “slow but steady diversification”.
The professional trustee sector continues to grow, but LCP’s report recorded the slowest rate of growth in five years in terms of the number of new appointments.
Schemes going straight for sole trustee appointments
Two in five (41%) new trustee appointments over the past year were sole trustee appointments, LCP found. This included 28% of new appointments that involved pension schemes moving straight to a sole trustee arrangement without having had a professional trustee before.
LCP’s report said the main drivers for selecting a sole trustee model were cost savings, a requirement for specific expertise for a project such as accessing the bulk annuity market, and a desire to increase the speed of decision-making. Many boards also faced difficulties in recruiting and retaining trustees, the report said.
“While sole trusteeship is a growing part of the market, it has the potential to disrupt the governance balance by weakening the focus on member interests. We welcome TPR’s extension of oversight into controls and governance.”
Maggie Rodger, Association of Member-Nominated Trustees
Holly McArthur, head of sole trusteeship at LCP, said sole trustee arrangements were becoming more popular for large pension schemes with more than £1bn in assets.
“It’s no longer seen as just a solution for smaller or less complex schemes,” McArthur said. “Sponsors and stakeholders are recognising that, with the right governance in place, sole trusteeship can deliver high-quality, strategic oversight at scale.”
A quarter (25%) of pension schemes now use a sole trustee model, LCP found. However, Scott Pinder, head of corporate sole trustee at Law Debenture, said there was still substantial growth available in this space.
“The number of firms using sole trustees is low today but accelerating, especially among larger companies that are beginning to see the wider benefits,” he said.
“Looking ahead, it is clear the professional trustee market isn’t just getting bigger, it’s maturing and growing up. Going forward, we expect to see an increase in demand for transparency, resilience, and clear value.”
The Association of Member-Nominated Trustees (AMNT) has previously warned about the growing number of sole trustee appointments with no oversight or regulation of the appointment process.
Quoted in LCP’s report, Rodger said: “While sole trusteeship is a growing part of the market, it has the potential to disrupt the governance balance by weakening the focus on member interests. We welcome TPR’s extension of oversight into controls and governance.”
Regulator sets out expectations for professional trustees
The findings come as the Pensions Regulator (TPR) is seeking to increase its oversight of professional trustee firms, which it has deemed “systemically important” to the UK pensions sector. TPR has been actively engaging with providers in this space and has identified areas of good practice and areas that require improvement.
“We expect professional trustee appointments to have followed a robust process, as trusteeship moves towards adhering to more conventional corporate governance standards.”
Nausicaa Delfas, TPR
TPR chief executive Nausicaa Delfas said: “We know that professional trusteeship has experienced huge growth over the last few years, and we welcome the valuable insight and perspectives provided by this and other surveys. The Pension Schemes Bill is set to radically reform the market and there is now a real opportunity to make sure good governance runs through the system.
“To protect savers, we have already extended our market oversight approach to the largest professional trustee firms. We expect professional trustee appointments to have followed a robust process, as trusteeship moves towards adhering to more conventional corporate governance standards.”
Recruitment focus shifts as market matures
LCP’s report noted that, as professional trustee firms have grown and attracted more regulatory scrutiny, recruitment has shifted focus to strategic hiring in operational and business development positions.
“Consolidation and new regulation mean the next phase of the professional trustee sector’s journey may look very different from the last.”
Nathalie Sims, LCP
Nathalie Sims, partner and head of strategic pensions relationships at LCP, said: “We are now seeing a maturing market, with the hiring frenzy having slowed and being replaced by a more strategic approach to recruitment.
“As professional trustees take on more schemes and larger mandates, the regulator’s lens has sharpened – and questions around governance, independence and performance are now front and centre.
“Growth in the market hasn’t stopped, but it’s changing. Consolidation and new regulation mean the next phase of the professional trustee sector’s journey may look very different from the last.”
