One clear result of the Competition and Markets Authority’s (CMA) review of fiduciary management has been a reduction in overall fees and to persuade trustees to fully consider what they are getting and need from their fiduciary manager.
There remain a range of views amongst schemes about the benefits of fiduciary management, but new research finds those who have taken the plunge believe in its advantages.
We have collaborated with Professional Pensions on a new piece of research looking into how fiduciary management is aligned to the end goals of pension schemes.
For many respondents to this survey, fiduciary management appears to be a solution to help bridge the gap to full funding. While that objective may still be some way off, the Pensions Regulator’s (TPR) defined benefit (DB) funding code will soon require trustees to set a long-term objective.
There are a number of key principles outlined by TPR, which we broadly summarise as:
- Schemes should progressively reduce their reliance on the sponsor covenant to reach a position of “low dependency”.
- “Low dependency” investments should be highly resilient to risk by the time the Scheme is significantly mature.
- The investment strategy should have sufficient security, sufficient quality and be able to satisfy expected liquidity requirements with reasonable allowance for unexpected cashflows.
In most cases, the long-term objective will be a transfer to an insurer, or self-sufficiency (or indeed self-sufficiency as an interim step prior to a buyout).
With the destination known, what does a fiduciary management relationship look like in the end-game? How should the portfolio evolve through time and what services do trustees require of their fiduciary manager when the portfolio is largely de-risked?
Overall, the survey found users of fiduciary management were much more likely to see its benefits than those who did not. Users were three times as likely to see fiduciary management as improving risk management than non-users.
Almost half (44%) of those who had adopted fiduciary management identified increased speed of investment decisions as its main advantage. Other advantages included an improvement in the scheme’s level of investment governance (35%).
This report contains a wealth of information for trustees to help them consider these issues as they begin to consider their long-term objectives and end-game.
We hope you enjoy the report.
Access the full report
