On the go: The Competition and Markets Authority order for schemes to run a fiduciary management tender exercise led to a 345 per cent increase in retenders in 2021, a process that saw a marked decline in fees, according to research from Isio.
As Pensions Expert reported previously, the CMA ordered that all schemes that did not run a competitive tender when hiring a fiduciary manager had to do so within five years of the date of that appointment, with the deadline falling in June this year.
Although the survey found that the number of retender exercises participated in by FMs for fully delegated mandates increased 345 per cent up to June 2021, when compared to the previous year, the vast majority of trustees opted against changing providers, with 86 per cent of schemes retaining their incumbent fiduciary manager.
The process did, however, see a significant decline in fees, especially for smaller schemes. Those with assets of less than £250m saw their annual charges reduce by an average of £25,000, or £250,000 over a 10-year period.
The CMA order also saw a notable increase in the use of third-party evaluators, who were involved in 79 per cent of selections. Last year’s figure was 57 per cent.
The time and effort involved in the retender exercise was partially to blame for an overall sluggish growth rate in the sector, the report stated.
Total assets under management rose by 16 per cent, but there was a slight decline in the growth of fully delegated mandates, which ran contrary to expectations given positive market conditions.
Paula Champion, head of fiduciary oversight at Isio, said: “Against a backdrop of the CMA order and Covid-19, 2021 was always going to be an interesting year, but whether it’s had the outcome most expected is still up for debate.
“It’s clear the retendering process has had a positive impact on the sector, with greater engagement and innovation from FMs, but the number of schemes staying with their incumbent but for a lower fee is perhaps not the outcome the CMA expected back in 2019,” she noted.
“The market volatility caused by the pandemic has arguably encouraged many to stick with the familiar, but it’s clear clients have used the process to ensure they are getting better value for money, which can only be a good thing.”
Champion added: “As the industry settles back to normal levels of activity next year, it will be interesting to see in our 2022 survey if growth continues at the pace previously seen, and how managers continue to demonstrate their value and stay effective, especially if charging less.”
