Which areas of the market is fiduciary management moving towards, and how is it defined? Six experts discuss what has happened in the fiduciary arena in the past year.
Tony Hobman: It strikes me that on the supply side it has remained relatively stable, with the same sort of level of service provision and broadly the same range of products.
We have seen increased penetration of the service into mid and larger schemes from its traditional base of small schemes, but perhaps that is unsurprising.
Mark Davis: That is similar to what we have seen on the demand side: continued growth, but an uptick in the average size of the mandates coming to market.
We see virtually no growth in our larger schemes of a billion-plus, although there has been growth in the smaller end
Neil McPherson, Capital Cranfield Trustees
We have seen more requests for proposal in the first half of this year than in the whole of 2015. That is a measure of the level of increase in demand for services.
Pensions Expert: Is there a size at which it makes more sense to build in-house capabilities instead of appointing fiduciary managers?
Davis: There is, although that size is many billions, and you then have questions to address around your ability to attract and retain a team, the competitive edge of your team relative to others and the significant resources of the major fiduciary managers.
Neil McPherson: You have a definitional issue with large schemes as well. We have some large clients where all the assets are managed in-house, so they are their own fiduciary manager. So we see virtually no growth in our larger schemes of a billion-plus, although there has been growth in the smaller end.
Our collective view is that it is horses for courses, but there is far more appetite at the smaller end of the market.
Sarah Leslie: It is the definition of fiduciary management that is the challenge, so what you might call fiduciary management for [large schemes] is in-house, which many people will not call fiduciary management but that is where the Netherlands has just grown up; most of their fiduciary management started in-house.
There will be people in the market that call a slice of multi-asset credit or alternatives ‘fiduciary management’.
The definition on the asset management side is that fiduciary management is about the total scheme assets, managed in a liability context. It is about getting to that end-goal. To me, having a slice of the assets is asset management.
Rikhav Shah: Going back to your definition of full or partial, one of the things we have seen is the schemes that have been there, and perhaps started off with what we call a partial mandate, and have had this for three to five years, have got more comfort.
It is now getting to the point where the market has developed to a fairer competitive environment
William Parry, Xerox HR Services
Some of those who have got it, they actually think, ‘This has worked; how do we use fiduciary management better?’ The flipside is they look at what the performance has been and they say, ‘This has kind of worked. We are happy, but how happy should we be?’
Pensions Expert: Is that a change in monitoring or just people getting more comfortable with what is going on so they are able to ask better questions?
Shah: It is a bit of both. There is a lot more knowledge and there is more education about it, and it is also just wanting to know, ‘Is this all still fine?’
McPherson: The industry has recognised some of the criticism in the past in terms of lack of transparency of fees and lack of transparency of performance measurement.
There are moves for that afoot; for disclosure there is the IC Select Standards Board, which has been set up and well supported by the industry.
William Parry: I was speaking to an asset manager who has recently launched, and the first question was, ‘Why now? Why not five years ago or in a few years?’
The answer is they now feel comfortable launching competition against companies, ie consultants, who would predominantly have been distributors before.
So if you have consultants that do distribute via asset managers, when the asset manager steps into a competitive environment, the asset manager might claim it could disincentivise a part of the consultancy branch to use that asset manager in future.
It is now getting to the point where the market has developed to a fairer competitive environment.
Davis: The role of intermediaries has been a really positive development that we have supported. There are a number of intermediaries now in the market providing advice on selection processes and ongoing monitoring services.
I mentioned how many RFPs and tenders we have seen so far this year – about 90 per cent of those have been intermediated.
Schemes embrace fid man, but not third-party advisers
Trustees are reporting high levels of satisfaction with fiduciary management, research from consultancy Aon Hewitt has shown, but some experts still raised concerns about appointments and monitoring.
Whilst almost all the selections we have been involved in have been competitive open tenders, the comparable number for last year was around 35 per cent of the selection processes being run by an intermediary firm.
Leslie: Transparency, particularly around fees and performance, is something we have seen significant focus on over the last 12 months – particularly with third parties, whether it is independent trustees or third-party overseers.
It is no good if we all, as fiduciary managers, come out and say what a great job we have been doing, if the clients actually own the decision – for instance if they have chosen to hedge 100 per cent of the liability, and that is really what has helped them over the last five years, because of where rates have gone; the fiduciary manager shouldn’t be credited with that.
