Consultants have called for greater competition in the fiduciary management industry as a report indicates few schemes are doing due diligence when appointing a provider.
As more schemes consider delegating investments to a third party, questions have been raised about whether there is a conflict of interest in the market, as more investment consultants launch delegation services, and whether schemes are completing enough due diligence when appointing managers.
If you want to dip your toe in, you can carve out some of your assets to a fiduciary manager
Anthony Webb, KPMG
Consultancy KPMG’s 2014 Fiduciary Management Survey, released today, showed continued growth in both full and partial fiduciary mandates, but found 75 per cent¹ of new mandates were won without a ‘beauty parade’ or seeking a range of quotes.
Overall, schemes seem satisfied with the performance of their fiduciary managers, but performance data are difficult to find.
“Anecdotally people are relatively happy,” said Anthony Webb, head of fiduciary management research at KPMG. “Performance data is more difficult to come by. It’s not possible to say whether it’s adding value for clients.”
However, Webb said the triennial review cycle common among defined benefit schemes lent itself to trustees taking a closer look at how their managers were performing. This will become more effective as schemes hold mandates longer and review past performance.
He added: “We know of more than 100 schemes with more than a three-year track record. [That’s] quite a large accumulated experience.”
Sion Cole, partner at consultancy and fiduciary manager Aon Hewitt, said research carried out by the company indicated 100 per cent of their clients went to full tender or used external verification.
He added: “Our survey asked trustees and three-quarters said they’d use a beauty parade and just under 50 per cent said they’d use a site visit.”
Brian McCauley, head of fiduciary management evaluation at Buck Consultants, said that while there had been a perception that fiduciary managers run by investment consultancies were simply transferring clients across, there were signs of asset managers and specialist fiduciary managers becoming more competitive.
“I don’t think the investment consultants are going to have it all their own way,” he said.
McCauley added that while most clients are happy with their manager, he was receiving an increasing number of requests to evaluate managers and retender.
The survey indicated the UK fiduciary management market has been growing 23 per cent year-on-year to £72bn, with 5 per cent of DB schemes fully delegated. This represents a growth of 44 per cent over the year, with 303 mandates as of June 2014.
Partial delegation grew by 52 per cent, with 205 mandates at June 30 2014. Webb said both types of management were seeing accelerated growth, but partial delegation relies on larger schemes for mandates, which may hamper further growth.
“If you want to dip your toe in, you can carve out some of your assets to a fiduciary manager,” he said. “It makes less sense for smaller schemes.”
Cole said the vast majority of his clients were fully delegated. “We have a small but growing number of partial – but full is where we’re seeing the most growth.”
¹This proportion was originally stated to be 81 per cent, as per the KPMG report. After publication of this article, KPMG revealed that there was a human error in putting together the report, and the actual figure was 75 per cent of mandates. This has been updated.
