Existing ties still a powerful influence in fid man appointments

Fiduciary management strategies will account for one fifth, or £200bn, of all UK defined benefit scheme assets by 2024, according to new research from Buck Consultants and data research specialists Spence Johnson.

Trustee respondents from 33 UK schemes contributing to the research recorded high satisfaction levels, but there were some persistent concerns around value for money and a lack of transparency.

The fast-growing market came under scrutiny last year after a survey from consultancy KPMG found 75 per cent of new mandates were won without a competitive tender process. 

The latest research shows that while the proportion of new mandates won through an open tender has increased considerably over the past year, a third of new appointments were still made without a competitive tender process.

More than half of scheme respondents (17 of 33) said investment expertise was the dominant driver for selection, but 40 per cent (14 of 33) cited an existing relationship as a reason behind their manager appointment.

William Parry, investment consultant at Buck, said the market had reached a consolidation phase after an initial rush of clients through the door but the number of direct appointments remains high.

It would often be the consultant who would set up a beauty parade for a tendering process… so straightaway they’re conflicted and perhaps also motivated to encourage their client not to go through that process

Richard Butcher, PTL

“Fiduciary management doesn’t seem to be going out to competitive tenders as often as we’d expect… Trustees often make selections of fiduciary managers based on direct recommendations and people they’ve spoken to rather than asking for three or four parties to pitch,” he said.

“We would very much encourage people to be thinking more about a long list of fiduciary managers rather than just appointing [directly].”

Existing relationships count

Richard Butcher, managing director at professional trustee company PTL, said the big winners in fiduciary management have so far been large consultancies that have added the service to existing clients.

“It would often be the consultant who would set up a beauty parade for a tendering process… so straightaway they’re conflicted and perhaps also motivated to encourage their client not to go through that process,” he said.

But Butcher said the greater competitive advantage for consultants came from the relationship itself and the comfort level that would provide.

“They can say to their client, ‘Look you know me, we’ve been working together for donkeys' years, we’ve got a pretty good product that does this, so why bother to look elsewhere?’ Better the devil you know than the devil you don’t,” he said.

Cost transparency 

Satisfaction rates among respondents remained high with an average rating of 5 out of 6, but participating scheme representatives remained unsure about precisely where they were getting value for money, broadly in line with the findings of last year’s survey.

One respondent, an independent trustee from a small scheme, said in the report: “It is a bit early for me to say if we are getting value for money, and in any case there is little peer group comparison for fees. Things are mainly on a bespoke single client basis, so it is hard to know what to compare it to.”

John Finch, head of the investment platform at consultancy JLT Employee Benefits, said while the bespoke nature of the service provided to each client posed challenges to comparing manager performance, the actual cost of the service for schemes was easily comparable.

“The disclosure of the fiduciary manager’s cost is important and as they grow… if we achieve through scale bigger discounts without underlying fund managers they should be passed onto the client, not retained by us,” said Finch.

“We get a fee for the job that we do, but the underlying cost as we get discounts on scale should go straight through to the client.”