Schemes embrace fid man, but not third-party advisers

Fiduciary management blurs the lines of investment consultancy and portfolio implementation, and some have said that to achieve best-in-class results and avoid conflicts of interest these roles should be separate; however, clients of fiduciary managers do not seem to share that view according to Aon Hewitt's report.

It’s possible to overstate the change that takes place when you put a consultancy in place

Ralph McClelland, Sackers

The survey represents the views of more than 250 respondents, 97 per cent of whom are scheme representatives. Respondents almost uniformly approved of their fiduciary management, with 98 per cent rating their overall experience as excellent, good or satisfactory.

Sion Cole, partner and head of European distribution, delegated consulting services at Aon Hewitt and an author of the report, said trustees were increasingly likely to stick with their initial providers.

“Those that have appointed managers in the past five years, when it’s more developed, have tended not to move,” he said.

Cole also highlighted increased growth among medium-sized schemes with between £100m and £1bn in assets, where previously smaller schemes had been the main growth area.

Source: Aon Hewitt

“You can see the take-up rate of that middle-sized client has increased considerably,” he said. “The economic climate is showing no signs of giving trustees any respite. The market has accepted interest rates are going to be lower for quite some time… All this leads to trustees increasing their appetite for fiduciary management.”

Trustees are doing it for themselves

However, some raised concerns at a number of the report’s findings, which showed advice from third-party evaluators has dropped in popularity to 34 per cent from 44 per cent in 2015.

Celene Lee, principal and head of investment consulting at Xerox HR Services, said she was “surprised” by the reported fall.

“That contrasts with what we’ve seen from trustees,” she said. “I’m surprised with increased use of independent trustees that any trustees would be happy running it themselves.”

Also worrying, Lee said, was the finding that monitoring of the manager is carried out by the trustee in two-thirds of schemes.

“Even for smaller, schemes, you can’t have an asset manager… tell you everything is rosy. You need someone to pick out the [details].”

Lee added it was important for trustees to seek out the right help when looking to appoint a fiduciary manager.

“They need to assess which provider gives them the best fit,” she said. “It’s only right they get someone who knows the market so they can make the best decision.”

Ralph McClelland, associate director at law firm Sackers, said it is more the exception than the rule to see a third-party adviser working on a fiduciary appointment.

He said that this is “often to do with price”, especially where trustees are looking to appoint the company that advises them already into a fiduciary capacity.

“It’s possible to overstate the change that takes place when you put a consultancy in place.”

Experts remain concerned towards advisers ‘flipping’ their clients from consultancy to their fiduciary services.

Historically much has been made about a perceived lack of competition in fiduciary management, with accusations that trustees will appoint existing advisers as managers without a competitive tender process.

McClelland said: “The pattern appears to be the case that where a [consultancy-based fiduciary manager] is appointed, it’s where they already have a consulting arrangement.”

However, he added there were legitimate reasons why this could be the case.

“It’s worth saying that where the trustees trust the consultant that’s a natural step to take, but it does leave the trustees open to the question that they do at least have the right provider for the service.”