Advisers to support trustees in search for fiduciary manager
UK - Four firms which assist pension trustees in the procurement of asset management and consultancy services are expanding their duties to assist trustee boards in their search for fiduciary managers.
KPMG recently confirmed it was entering the market to become an adviser to pension funds on the appointment of fiduciary management or delegated consulting services. But Allenbridge Epic, Capita Hartshead, and Pan Governance are also looking to extend their consultancy services and help trustees new to fiduciary management find an appropriate management service, if required.
Terry Ritchie, head of management consulting at Capita Hartshead, recognised the market is still in the early stages of development, but said his team is seeing increasing calls from trustees for information and education on fiduciary management and the services so far offered in the UK market.
Whereas fiduciary management is a well-known concept in the Netherlands as a service whereby trustees pass day-to-day decision-making on investment selection and transactions to a single manager firm, it is still relatively new to the UK's established use of investment consultancies and managers.
Capita Hartshead sees its service as a simple ‘added value' extension of its procurement services duties, in much the same way as it might assist the appointment of an investment consultancy.
Likewise, fiduciary management should in turn be seen as a value addition to investment consulting, albeit the boundaries between consulting and fiduciary management must be clearly explained to clients, said Ritchie.
"It has to be made clear to clients that there are people who can do the fiduciary management and those who do the consulting role. Clients are very familiar with investment consulting, but they need to understand where the consultant's role starts and stops," said Ritchie.
"It is just an issue of communication, along with a need to gain the trustee's confidence. Whether the firm is an investment consultant or a fiduciary manager, what is important is the trustees simply understand the questions they need to ask."
He continued: "But they should see added value because they would be giving the managers powers to make instant investment decisions, which should add value, along with exposure to fare more options, they will hopefully have negotiated cheaper fees, and they are likely to have their fingers on the pulse 24/7," he added.
Although few pension funds have so far implemented a fiduciary manager, Ritchie predicts - based on conversations held with clients so far - that trustee boards may appoint a fiduciary manager to manage part of their portfolio at least until they gain confidence in the practice, and then move to full implementation if it suits their needs of dynamic asset selection and management.
"It is a very onerous decision these days to be a trustee, and is a very serious responsibility. They need to grapple with the concept that the buck still stops with them. But some are happy to pass some of the daily decision-making to other parties, and such moves are going to be driven by the size of the portfolio," added Ritchie.
Steve Delo, chief executive of Pan Governance, believes fiduciary manager selection should be seen merely as an extension of his company's duties as independent trustees, but requiring a great deal of knowledge on what each fiduciary provider does.
In particular, he suggested one of the difficulties he still faces is in trying to gauge whether a fiduciary manager should technically be considered to be a service or a product, depending on whether the offering is delivered by an investment consulting, the likes of Mercer or Watson Wyatt, or as a more complex asset management delivery of advice and in-house fund selection. That decision could determine whether independent trustees, such as his own firm, are allowed to advise on fiduciary manager appointments.
"The process of oversight is going to be difficult, because if you have an investment consultant you can't ask them to also be your asset manager. And this creates all sorts of conflicts," said Delo.
"I have yet to get a decent answer on the regulatory situation: is [fiduciary management] a service or a product? If [the pension fund] is investing through pooled vehicles, they ought to have independent advice. But if the fiduciary manager is using their own pooled funds, is that not just a wrap around a product? If it a service, we can work with the trustees. But if it is a product recommendation this is not the remit of an independent trustee business," he added.
Despite the complexities, Delo is firmly of the belief that the arrival fiduciary management in the UK is almost a retro move towards pooling services again, albeit with a new label. Whereas the 1995 Pension Act encouraged a shift towards fixed asset positions - separating equities, bonds etc - fiduciary management could in part been seen a shift back towards pooling.
"The lesson we need to learn from this is whilst it doesn't necessarily look like balanced management, the same pressures which up earlier will ultimately surface and lead to the risk of herding. As big books of business build up at firms, we will start to see comparisons between different providers. It doesn't mean it will happen, but there is an inherent risk.
"I am positive about the benefits fiduciary management can bring to pensions. But there are a lot of technical issues which have to be looked at," he added.
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