Roundtable: William Parry from Buck Consultants, HR Trustees’ Giles Payne, Russell Investments’ David Rae, Ralph McClelland from Sackers and Towers Watson’s Pieter Steyn, talk about how to monitor and assess a fiduciary manager, in the third part of the roundtable.
Giles Payne: Comparing managers is a big, big question at the moment. The explanation is very difficult because everyone has a slightly different mandate. So, it is valid that you cannot compare, but it does not change the fact that it needs to be done.
There are some people starting to do some work around it; the more that people appoint, the more people want to know that they have not appointed some complete duff and they are 10 per cent behind funding of where they might have been if they had appointed someone else.
It is one of the very difficult things, as a trustee, to try and say these people are better or worse, and a lot of the fiduciaries are also saying, ‘But surely I should be just plain judged again how your funding has improved over this occasion.’But actually, yes you may have improved your funding at a certain speed or a certain rate and it may be within expectations but it does not mean that you do not want to do better if that is available.
Pieter Steyn: It is going to remain a difficult thing to do because clients have such unique objectives and their own objectives change over time.
It is not our experience at all that clients do a set-and-forget strategy. It might be that we have quite a spread of clients and some very large clients, but we are effectively being crawled over all of the time in our role as fiduciary manager.
Every quarter feels like a proper review of exactly what has happened – we have to explain exactly how we have managed the portfolio versus its mandate and the monitoring is set up in that way.
William Parry: It is promising that we are seeing more and more people monitoring their fiduciary managers on an ongoing basis.
The more that people appoint, the more [they] want to know that they have not appointed some complete duff
Giles Payne, HR Trustees
I think on the point about comparing fiduciary managers, there are two aspects. It is very hard, because they are all different, to say one is definitely better than the others. The matrix we have is so comprehensive it is too detailed for trustees, because there are very few single characteristics across all fiduciary managers.
But what you can do is link up managers properly to the right clients, and this comes back to the idea of having an independent at the outset.
Ralph McClelland: There are two questions here: there is the appointment process and then there is the ongoing monitoring. My experience on the ongoing monitoring is that most managers want to have that interrogation on a quarterly basis, they want to have the dialogue and they want to set up reporting in a way that actually meets the needs of the clients and that can be as tailored as necessary. I think that is great.
Whether or not a third party is involved is a very different question. I think you are right to define a full fiduciary solution as one where there is both a consultancy and an implementation arm.
Getting the on-boarding process right and actually going in there in a very strong way in terms of setting out your objectives and how you are going to monitor them, on a scheme-by-scheme basis, is one of the reasons on-boarding needs to be approached carefully. It can be quite a time-consuming process.
David Rae: As an asset manager, we welcome that opportunity to talk to clients about the experience and the outcome that has come about over a quarter, or a year, or a longer period because that helps to demonstrate how the funding ratio is evolving and why it is evolving in a certain fashion.
It helps to have the conversation with clients about other opportunities they might consider that fall outside of the existing structure, or different ways to think about asset classes and investments they might use. We certainly have that process with all our clients and would echo this notion that, actually, you are always under review.
As with any other outsourcing relationship, as the provider you are always under review in one form or another – whether it is boxed as a formal review process, we are increasingly seeing that, where an independent adviser or consultant will come in and say, ‘You have been doing this job for three years; the trustees are very happy but they would like the opportunity to assess whether they are still getting the best and do a comparison externally.’ We think that is entirely appropriate.
Payne: Trustees regularly underestimate how much work they have to do once they appoint a fiduciary manager. There is an enormous amount of work to be done around beliefs, understanding, expectations and actually planning for how to achieve what you are trying to do. It is not, ‘Over to your and it is your responsibility’; it is still the trustees’ responsibility.
As with any other outsourcing relationship, as the provider you are always under review in one form or another
David Rae, Russell Investments
There are some trustees who may well think, ‘Right, I have appointed a fiduciary manager, phew.’ But in fact, I think fiduciary management is still relatively new and there are people who sort of just understand that it is going to take two, three, four years to bed down.
McClelland: Do you believe that it is useful to have another expert involved, another consultant actually interrogating it? Is there a risk that they are only getting one perspective, if there is a close relationship between the consultancy function and the implementation function?
Payne: I think you need a critical friend and there is an increasing capacity within the market to provide that effectively. And as that increases, the experience of each individual fiduciary manager and their mandate increases and you can start to move away from the idiosyncrasies of each individual mandate and start getting a picture of how the actual manager is achieving their aims and you can start seeing the outcomes starting to sort of show their colours.
Steyn: We have quite a lot of experience in working exactly on that basis with clients, where we are the adviser and the implementer of strategy but there is another consultant, or an independent investment adviser in the room, who is almost acting like another non exec, who is just a professional expert that the committee can turn to when there is a proposition on the table, for example, or when there is a certain view being taken that has not played out yet, and we can turn to another independent expert.
Read the other three sections of this roundtable series:
