Does fiduciary management have a transparency problem?

Simon Cohen: One issue I have is around transparency and understanding how much of the management fee the underlying manager and the fiduciary manager are actually receiving, because historically that has not been particularly transparent. It is not clear how much savings on the underlying manager fees the client is making by being invested with the fiduciary manager rather than going directly with that manager.

Brian McCauley: We certainly look for those things. I have no problem with the transparency we are getting from the providers involved. One of the benefits of the evolution of fiduciary is that providers are all becoming more and more transparent. However, I suppose if we are looking at costs or fees there will be a range of base fees, performance-related fees, underlying manager fees, but we are getting all that data and we can compare that.

Ian Smith: Should there be wider publication of these numbers?

McCauley: Every bit helps; if it is a perception that it is becoming more transparent, that can only help the industry.

If it is a perception that it is becoming more transparent, that can only help the industry

Brian McCauley, Buck Consultants

Stuart O’Brien: Our perception is that things are opening up. However, there is now a related point about the transparency of third-party managers where fiduciary managers come into increased competition with them. This is particularly so in the area of partial fiduciary management.

As soon as you have consultants, offering clients what is essentially a fund manager role, then there is going to be a changed dynamic with those third-party fund managers that might otherwise have been on a buy list or recommended on the consultancy side. I wonder whether those third-party managers will start to become a little less transparent because they fear competition from a consultant’s fiduciary management arm.

Pieter Steyn: We are not finding asset managers less willing to speak to us. We are very open with the asset management industry that we would like the best ideas from the industry to flow through our research team into clients’ portfolios, whether those clients are advisory, fiduciary management or clients using our pooled vehicles. The only real difference is the speed at which these ideas are implemented; through fiduciary management it may just be that the idea gets implemented a bit more quickly.

Smith: So you do not pretend there is some kind of division between the two?

Steyn: No, our client leads, who manage the relationships, operate across advisory and delegated clients. We have separated the specialist support structures for advisory and delegated clients, but the content is the same.

O’Brien: Does that create a risk of levelling down? Take for example a fund which very quickly and for various reasons goes onto a sell rating with an investment consultant. If the consultant offers both conventional advisory consulting and fiduciary management then it is very important there is fairness between those two sides of the business in terms of when that information is released.

I wonder whether those third-party managers will become a little less transparent because they fear competition

Stuart O'Brien, Sackers

I am aware of one scheme who had to wait to get information from their consultants on a particular fund because the research team’s memo on that fund had to be released simultaneously to both sides of the business. I’m sure in most cases it doesn’t cause a delay, but the process is something to be mindful of.

Steyn: We do not see it slowing us down at all. However, we follow exactly that approach, in that the research team would publish a rating, which in this case would be a downgrade and would go out to the consulting side, the fiduciary management side but, very importantly, also to clients at exactly the same time. Our portfolio managers would therefore learn of the rating change at the same time as our clients do and then it is purely down to their response time.

McCauley: It is something that I am very conscious of given that we do not offer fiduciary management, but we do offer an impartial manager research side. I have in place for some of the fiduciary providers, non-disclosure agreements, where we do not share our research from the fiduciary manager evaluation team with our dedicated research team on, for example, fees charged by a provider. They do not have access to that information and that stays within the fiduciary evaluation team.

It is really important they are not seeing what is in your growth engine when it comes to fiduciary research. I want to keep that separate; otherwise I may not be able to remain as impartial. However, it is potentially a little bit harder for a firm providing both fiduciary management and traditional investment consulting services to really be honest about those separations.

Shamindra Perera: There is one challenge for you, Peter, which I would interested to hear how you deal with. When you make a research rank change available, let us say a downgrade of an investment manager, at the same time to your in-house fiduciary team and to your clients, you know that implicit in the value proposition of fiduciary management is that the consulting clients cannot and will not act at the same time. Therefore, you have one segment of your clients, the fiduciary management clients, potentially frontrunning other clients.

Steyn: I think it is a fair question, but quite a theoretical one. What tends to happen with a wide spread of clients like ours, is that some might even be able to act more quickly than us. We go through our institutionally robust internal process after receiving the sell recommendation and then act quickly. There is no frontrunning happening. The consulting world needs to get on the phone immediately when something as significant as the example you are referring to takes place.

This roundtable was chaired by Pensions Expert editor Ian Smith