Trustees employing fiduciary managers are less engaged in assessing the quality of their provider than those with a traditional investment consultancy relationship, the latest report from the Competition and Markets Authority has found.
The watchdog evaluated trustee performance with regard to switching providers, conducting a tender process and/or switching, formally reviewing fees or quality, and carrying out external reviews on fees or quality.
Trustees of schemes using fiduciary mandates scored less on all four measures, although the CMA said "it is difficult to draw conclusions from these results however, as fiduciary management is a relatively new and emerging service".
It also noted that there are potentially greater costs and time demands involved with switching fiduciary manager, when compared to investment consultant relationships.
The findings were at their most stark when comparing the performance of defined benefit trustees and their defined contribution peers.
DC schemes were significantly less engaged than average; the rate of switching providers dropped from an average of 27 per cent across all schemes to 16 per cent, while switching or tendering rates dropped to 29 per cent from an average of 41 per cent.
Smaller schemes were also less likely to assess quality, with larger schemes conducting more formal reviews.
"Together, this evidence raises potential concerns over the extent to which trustees are able to assess the value for money of their current provider and, in [fiduciary management], switch to an alternative provider," the report concluded.
The CMA acknowledged that trustee engagement can take many different forms, but also cited third-party research showing that trustees rarely disagree with their investment consultant, and do not meet technical knowledge and understanding requirements in many cases.
The paper also discussed potential remedies, designed to inform trustees of switching costs, empower and incentivise trustees to engage, and reduce switching costs.
The measures could be introduced via the CMA or other regulators, and include requiring fiduciary management firms to disclose exit costs, mandating the use of professional trustees or investment sub-committees, mandatory tendering or switching, and increased requirements for trustees to seek value for money.
