Fees are one of the least important considerations to those using fiduciary management solutions in the UK, despite a perceived lack of transparency on costs, according to Aon Hewitt.
The consultancy’s 2016 Fiduciary Management Survey found that the cost of fiduciary management was only the seventh most important quality indicator to UK funds, behind concerns such as a provider’s track record or ability to explain its investment process.
The survey of more than 370 pension funds, however, found a noticeable split in attitude between those already employing fiduciary management – where only 13% cited fees as an important indicator of quality – and those only considering outsourcing, at which point the number of schemes concerned rose to 34%.
Sion Cole, head of European distribution at the consultancy, told IPE Aon Hewitt was pushing for greater clarity on fees and complete separation of any costs incurred while employing fiduciary managers.
He said it was important trustees understood “all of the fees they incur” and that pension funds were able to ascertain “who gets paid and what they get paid to do”.
To this end, the consultancy is in favour of unbundling any fees levied as a result of fiduciary management agreements.
“What we are looking for,” Cole said, “is total expense ratios, but not just the total-expense-ratio headline number.
“[We are also looking for] the total expense ratio broken down into the individual areas so trustees can make sure they understand that’s the total fee they are incurring, and that this is who is making money from this transaction.”
He did not back the idea of a standardised approach to charging for asset management services, however, noting the flexibility currently allowed providers to vary their approach.
“Clarity,” he said, “is the number one area we are trying to promote.”
The findings come as the UK debates how to improve fee transparency, following a widely criticised report by the Investment Association on the retail investment sector likening hidden fees to the Loch Ness monster.
The report was dismissed by Mark Fawcett, CIO at the National Employment Savings Trust and chair of the IA’s independent advisory board on costs, who said the board felt there was “scope for improvement” about how fees were disclosed.
Cole also rejected the notion of developing a standardised way of measuring the industry’s performance, with the consultancy’s survey finding that 87% of pension funds preferred to have relative-performance measurement taking into consideration each fund’s goals.
“No two pension schemes are the same,” he said. “We therefore believe it is important, when implementing a fiduciary solution, that trustees make sure their provider creates a bespoke benchmark that accurately reflects their precise objectives and their unique liability profile.”
Cole also noted, across Aon Hewitt’s sample of UK funds, a growing interest in fiduciary management from schemes with more than £100m in assets.
The survey also found that, compared with 2014 – when 22% of larger schemes surveyed had availed themselves of fiduciary management – the percentage had now increased to 40%, bringing it close to the survey’s average of 45% across all UK funds surveyed.