The Pensions and Lifetime Savings Association has called for mandatory fiduciary management tenders mandates to be closed processes with no minimum number of applicants, but some experts have questioned whether the move would do anything to change the status quo.
Mandatory tenders formed a key part of recommendations made by the Competition and Markets Authority, after it found evidence of an adverse effect on competition in both fiduciary management and investment consultancy.
Its provisional decision stressed the need to strengthen trustees’ ability to identify and select value for money, rather than schemes continuing to award fiduciary manager contracts to incumbent investment consultants where better options may be available.
On the one hand, they write from a trustee perspective and talk about good governance, and then they put in solutions that don’t seem to fit with good governance
Roger Brown, IC Select
In its response to the consultation, the PLSA, which represents pension schemes but also companies that sell services to trustees, argued that tender processes should be closed, with trustees selecting who they invite to pitch for business.
“An open tender process could result in a high volume of boilerplate responses from the supply-side, which could crowd out the other important issues – such as asset allocation or member communications – which trustees need to consider,” the response noted.
Instead, the industry body argued that guidance on best practice would help to ensure that closed tender processes are effective and help trustees find the best fiduciary manager for their scheme.
No minimums for tenders
However, despite its assertion that best practice would involve approaching a variety of providers, possibly with the help of a third-party adviser, the PLSA also said there should be no minimum number of participants in a tendering process.
Caroline Escott, the body’s policy lead on investment and defined benefit, noted significant member support for closed but mandatory tendering, and said rules would engender box-ticking over meaningful change.
“It’s important that schemes are given the space to navigate the tender process themselves, thinking about what makes the most sense for their scheme in a meaningful way,” she said.
“We believe that our proposal for some kind of light-touch documentation process – where the emphasis is on trustees demonstrating that they ran a competitive tender and how a broad assessment of the market was undertaken – without imposing specific limits or threshold could be a good way to achieve this,” Escott added.
Concerns voiced over one-pitch tenders
Industry figures were less content with the PLSA’s proposals.
Andrew Warwick-Thompson, a former executive at the Pensions Regulator and CEO of the LGPS Central pool, tweeted “so much for openness and transparency”, while Roger Brown, founder and director of oversight company IC Select, said not insisting on a minimum level of competition was “exactly what has been going on for the last 10 years”.
Brown said the response seemed contradictory: “On the one hand, they write from a trustee perspective and talk about good governance, and then they put in solutions that don’t seem to fit with good governance.”
However, he agreed that tender processes should be closed, rather than trustees wasting time reading through pitches that may be “completely irrelevant” in the context of their specific needs.
Brown recommended approaching between four and six companies before working down to a shortlist of three.
Tender wording should filter market
Policymakers will be keen to avoid putting in place “anything that restricts progress”, said JLT Employee Benefits’ Mark McNulty, but the head of investment solutions stressed that all tenders should involve multiple applicants.
“We would definitely have a minimum of three responses,” he said. “One is not enough.”
McNulty also argued that tender processes should be open so as not to create barriers to new entrants, but said that regulators and the industry should help design best practice tenders that avoid bombarding schemes with irrelevant pitches.
Those tenders would pick up on the work done by the CMA to require disaggregation of fees, standardised reporting of performance and addressing conflicts of interest, as well as outlining the specific needs of the scheme.
“Providers would be deselecting themselves from a specific tender because the tender was designed so well,” he said. “I would do that by setting criteria so that potential respondents can test whether they actually comply with what’s required.”
