How easily could fiduciary management be set up for defined contribution?

Sarah Leslie: Where significant value will come is where we use technology, which is something that I think in the industry we do not use enough of.

We can then consider the varying inputs – retirement date, required pension contributions and risk – and vary these options to create a member-specific future plan equivalent to a defined benefit flight plan.

The individual is currently hamstrung by having daily liquidity; they have to invest in funds that have daily liquidity, but for the first 20-odd years of their contribution they do not need it

Neil McPherson, Capital Cranfield

To a certain degree they do it in the US with the target date funds, where they look at the different levers they have got to pull; so if I want to retire at a certain point in time, vary the contributions I am putting in or vary the risk that I am taking up to a point – you could see how this may evolve over time.

Neil McPherson: But that is still leaving it on the individual; one of the selling points of fiduciary management for small schemes is that it can give you access to all these new innovative asset classes that you cannot access with small schemes.

You could apply that directly to the individual. The individual is currently hamstrung by having daily liquidity; they have to invest in funds that have daily liquidity, but for the first 20-odd years of their contribution they do not need daily liquidity.

They want access to growth assets like private equity, multi-asset credit etc, which they are never going to get access to individually, but they could get in an aggregate approach that is managed in, you could call it a paternalistic pool. We are miles away from this.

William Parry: I wonder if the growth of mastertrusts will generate this?

McPherson: It hopefully will. Mastertrusts are still in the daily liquidity system, which you do not need when you are 22 years old.

Parry: The target date fund that some DC providers offer is of that ilk; I think we are moving almost into what a great diversified growth fund would look like for a DC member.

It gets trickier on costs actually, than logistics. When the Pensions Regulator stepped in on behalf of DC members with the charge cap, it made it even harder for asset managers to offer best ideas solutions across the board for DC members, and I suspect that is where fiduciary management would find it hard to transcend to DC; i.e the cost barrier within DC.

McPherson: I think yes and no – if you take it out of the DC space and into the wealth management space, you have a discretionary fund manager, who is effectively your fiduciary manager, you give him full discretion to manage your own portfolio.

The vast majority of DC members do not have discretionary portfolio managers but they need their DC managers to act in that resource to save them being in ‘dog’ funds or collapsing with the market.

Rikhav Shah: I think the biggest challenge comes from the regulatory side rather than fiduciary managers’ capabilities. It has got to be pushed through regulation first.

When fiduciary managers' model portfolios have been launched as standalone offerings, and put up against specialist asset manager DGFs, you see them less frequently on shortlists

William Parry, Xerox HR services

Tony Hobman: Do you mean pension regulation or Financial Conduct Authority regulation?

Shah: I think it is probably a part of both. Things like a cost cap, there is a very good reason why it needs to be there, but then it probably needs to develop on to the next stage and, again, there are lots of regulations around protection, but how do you evolve that just that bit further? It is moving away from a world of just a pension to actually having a much wider financial management.

Parry: There is also a slightly more controversial point here, which is particularly controversial for the providers. Fiduciary managers’ model portfolios can be seen in some cases as like DGFs. However, when they have been launched as standalone offerings, and put up against specialist asset manager DGFs, you tend to see them less frequently on shortlists; so research teams have, for various reasons that I do not want to go into, expressed a preference for the well-known DGFs. Those offerings are classified differently to the ones that you see within fiduciary arrangements.

It comes back to the importance of what you are getting and how well it fits your specific needs, and then when you look at DC, if you are going to go down that route would you go through fiduciary or would you bypass it and have a target-led structure and one of these different DGFs?

Mark Davis: It is interesting because, when you look at the results that the growth portfolios of several fiduciary managers have delivered relative to the DGFs which many schemes use, the fiduciary portfolios have, I think, performed much better. The last 18 months in particular have been great for fiduciary managers.

I think part of that is down to the daily liquidity. Many DGFs are being offered to DC clients as well as DB and as a result the assets are very liquid to fit with the daily liquidity constraint. The assets that can be held within a fiduciary portfolio just cannot be held in a daily liquidity vehicle in the size they can when held specifically for a DB scheme. I think the use of specialist managers in all asset classes rather than a single firm managing all the assets also makes a significant difference.