Trustees should ensure fiduciary management is an approach beneficial to their members rather than being swept up in the excitement of the latest “must-have gadget”, the managing director of an independent trustee firm has warned.
Richard Butcher of PTL compared the marketing of fiduciary management in its various guises with the excitement surrounding the release of new Apple products.
“You do need to rise above that hype,” he said during a panel at last week’s National Association of Pension Funds annual conference. “You need to ask yourself whether fiduciary management, as a bit of kit, actually does the job for you, the job you want done.”
He said trustees needed to decide whether fiduciary management was right for them by asking themselves a question about their current investment approach.
“That question is ‘is my current investment function dysfunctional or less than, say, 70% optimal in the quality of the decision-making and the time and timeliness of the decision-making’,” he said.
However, he noted that there were other tools available that could be used instead of fiduciary management if a pension fund wanted to improve performance to address a deficit – such as hiring a CIO, or launching an investment sub-committee with powers beyond recommending a new strategy to trustees.
“There is no silver bullet to this problem, there is no one solution that will solve this problem – there are lots of silver pellets, lots of little strategies that will help you achieve your stated objective,” he said.
”When you’re buying fiduciary management, bear that in mind. It is not the answer to achieving your funding goals. It is just part of the answer.”
When the panel was later asked whether benchmarking fiduciary managers was an effective way of comparing performance, Sion Cole, head of client solutions at Aon Hewitt’s delegated consulting business, said it was “nigh on impossible” and warned against such an approach.
“We benchmarked balanced fund managers, and that led to their demise, partially, because they all did the same thing,” he said.
Cole said that, because fiduciary management was bespoke by design, and because each provider took a different approach, fair measurement would be difficult – made even more problematic by a different understanding between current providers as to what constitutes fiduciary management and how much responsibility was delegated.
“Because we can’t pre-define it, it’s very hard to benchmark against somebody else, because pension scheme A’s mandate and how they perceive fiduciary management is very different from pension scheme B’s consideration of what fiduciary management is.”
He said providers should be assessed on individual performance based on the pre-defined mandate and examine whether the decisions taken in their time added value to the investment.
Patrick Kennedy, director at independent trustee company Entrust, concurred with Cole that benchmarking was not the route to pursue, and urged trustees to take a closer look at the approach taken by any fiduciary manager.
Speaking of his preferred approach to hiring a fiduciary manager, he said: “You’ve got to rip the bonnet off and have a good rummage around.”