Any other business: The Financial Conduct Authority’s recent call for evidence on transaction fee disclosure is further evidence of a tightening up on charges, but in-scheme adviser conflicts also pose a threat to cost-efficiency.
The pressure for transparency is just one part of a much broader push to protect members' interests as we head into the post-April era.
Beyond charges, however, conflicts of interest in the day-to-day running of schemes can also seriously impact schemes' cost-efficiency and can create governance challenges for trustees.
Adrian Kennett, director at professional trustee company Dalriada, said tension can arise across the various parties involved in a scheme's investment strategy and administration.
Asset managers, for example, constrained to a benchmark by trustees may be keen to promote a fiduciary management service for which they can in some cases double their annual management charge to around 0.7-0.8 basis points.
Kennett said: “Always in the back of their minds there is that potential opportunity of moving you to a higher fee basis.
"As a trustee we like to define and hold clear roles and it's about getting that framework set right at the start."
Tug of war
There is also potential for disagreement between scheme actuaries and administrators when the two parties belong to different companies.
Both sides here could be working to encourage the scheme to bundle together its actuarial and administrative services.
“You can get to a position where you are having sizeable rows and disagreements… and the different parties are not working together,” said Kennett.
Roger Mattingly, managing director at Pan Trustees, said he thought this type of point-scoring activity was damaging to schemes and could seriously undermine the parties involved.
“There is a real mood at the moment that it needs to be grown-up, people need to be professional – they’re missing the point and living in the past if they behave otherwise,” said Mattingly.
It needs to be grown-up, people need to be professional – they’re missing the point and living in the past if they behave otherwise
Roger Mattingly, Pan Trustees
Trustees must also be prepared for the strategic thinking of those investment advisers hired by sponsors differing dramatically to the view of their own consultants and advisers.
Driven by a divergent set of interests, lay trustees can be left feeling confused by the disparate perspectives offered by advisers with different allegiances.
Bill Whitehead, independent trustee at professional trustee company Pentrus, said this was an area where professional trustees can hold advisers to account.
“There are still too many schemes without professional trustees which are open to being given substandard service by advisers,” said Whitehead.
He encouraged trustees to regularly review their advisers and where necessary make personnel changes. This, he said, could take the form of simply changing the individual adviser within one company to get "a fresh view".
He added: “There needs to be a balance of interest for the trustees – all persons must ensure the best outcome is given to scheme members. Trustees must be alert to conflicts and act on them when they see them."
