The UK professional trustee market has recorded its fourth year of consecutive growth, with professional trustee firms’ estimated market share of defined benefit (DB) schemes increasing to 39%, according to a report from Isio published last week.

The report also revealed that the UK professional trustee market saw average revenues grow by 16% in 2023. Last year saw 2,300 professional trustee appointments, up from 2,100 the year before. The number of trustee directors, meanwhile, grew from 290 in 2022 to 320 in 2023.

Independent Governance Group (IGG) and Dalriada Trustees saw the biggest increase in the number of appointments, but the question of how many pension schemes can a professional trustee take on, remains.

According to Adrian Kennet, director of Dalriada, this is a complicated question because “no two schemes are the same” and this often depends on how well run and governed a scheme is.

Whether they are well run or not, Kennet said that if an individual professional trustee handles beyond 10 schemes, then “it’s starting to spread”.

He said: “It might be fine because they are well governed, but that’s the number that I think starts to bring into question whether that trustee has capacity.”

Naomi L’Estrange, co-chief executive officer at Vidett, agreed that it depends upon the size and complexity of the scheme and the level of governance support available to it. But for Vidett, she said the more usual range would be between five and 20 schemes.

Size doesn’t matter

Stuart Travers, trustee director at IGG, said the firm’s professional trustees have around 10 clients, ranging in size typically between £20m to £500m in total assets.

For larger clients exceeding £1bn in total assets, a professional trustee would handle around six schemes, he said, adding that for smaller schemes, professional trustees could run 20 schemes.

Since supporting a pension scheme is becoming an “increasingly complex matter”, L’Estrange pointed out that this service is as appropriate for large schemes as it is for smaller ones.

“It is very rare for a scheme not to find a professional trustee worth the investment once they make it. The Pensions Regulator finds that generally adding a professional trustee improves how a scheme is run and are keen to see them on all schemes, although they have not gone so far as to mandate it yet.”

Kennet agreed that it is not about the size, but about the amount of activity that a scheme generates and the level of risk the scheme represents.

He said: “You can have a £40bn scheme that is very well governed and has the budget to spend to be well advised and is supported by a solvent sponsor – that scheme doesn’t really need a professional trustee. However, you can have a £20m scheme where the employer is restructuring, the governance documents are not in place and they don’t have an annual business plan – a professional trustee could add value there.”

He added: “It’s not a case of scheme size, the answer is how well governed is the scheme and what risk the scheme represents.”

Adding value

Dalriada’s Kennet pointed out that professional trustees bring a “certain set of skills” to the trustee board, but are not looking to replace member-nominated trustees (MNTs).

“If I’m appointed to a scheme I don’t know the membership personally, I don’t know the history of the employer. I can Google it, but I’m not engaged in the business. I don’t know the culture of the organisation. There are things that I don’t know,” Kennet noted.

“What a professional trustee knows is their way around pensions generally,” he pointed out.

He said that a trustee board needs a blend of skills. “You need diversity of thought, the ability to challenge advisers, and the ability to make timely decisions. If you can get all of that with the MNTs, you don’t need a professional. If a professional can add some technique and knowledge of the market and ability to challenge advisers and support to the trustees, then a professional may be of value, but it’s not a direct competition between professional trustees and member nominated trustees. It’s about what can present the best blend of skills.”

Kennet said that a professional trustee can work with MNTs as a consultative committee which sits outside of a trustee board without the legal obligation of trustees and the legal liability.

He said: “I don’t think it’s a case of professionals competing with MNTs. It’s rather what is the best mix of skills to see the specifics of that particular scheme.”

Sole trusteeship

Vidett’s L’Estrange said that the majority of the firm’s appointments involve sitting on a board alongside other trustees, both employer- and member-nominated.

“We would take an employer- rather than a member-nominated seat so it does not involve any reduction in numbers of MNTs,” she said, pointing out, however, that there is an increasing trend towards sole trusteeship, which do not involve MNTs.

“There are a number of reasons for this. The greatest one is the increase in regulatory and governance burden for pension schemes, and the complexity of the subjects covered. Both employer and member trustees can find themselves struggling to give the time required to keep on top of these developments, and a move to sole trusteeship is often driven by challenges in finding the right employer and member trustees,” L’Estrange explained.

“Having said that, we hugely value the great member and employee trustees we sit alongside, and have no desire to push for any particular type of appointment. The requirement is not for all members of a trustee board to know everything, but that as a whole it has the skills to manage the scheme properly.”

She said that adding a professional trustee to a pension board gives “huge assurance” to the rest of the board that any gaps in their own knowledge will be filled, and that they will bring knowledge from other schemes.

“It can be a good way to encourage member trustees to carry on,” she added.

For the schemes where volunteers aren’t there, L’Estrange said sole trusteeship can be the right answer.

“It is also possible to ensure connection with the membership in another way alongside sole trusteeship – via a consultative committee or a member rep attending some meetings.” But, L’Estrange stressed that MNTs are “invaluable” and Vidett “would be very sorry to see them go”.

Dutch trustees struggle with increasing IT security

Professional trusteeships are also an increasing phenomenon in the Netherlands, even though precise figures are lacking. Most professional trustees sit on the boards of just two or three pension funds, but some combine this with additional positions in supervisory boards of other funds.

An increasing number of these funds provide them with secure devices they must use for their work concerning the funds. This can become a nuisance for those who work for a large number of funds, noted Ronald Heijn, who sits on the board of pension fund PGB and the supervisory board of the staff fund of pension asset manager APG. He recently stepped down from a role at the fund for pharmacists SPOA.

“Each of the funds I work for have given me a laptop. The time that you could bring your own device and receive fund documents in your private email is over as the trend is clearly that IT scrutiny is increasing,” said Heijn, adding: “That always brings a dilemma, especially when I’m travelling. Should I bring 12 kilos in laptops?”

Margreet Teunissen, who works for five funds in various capacities, has the same experience. “Some funds prefer to provide their trustees with secure iPads. Two of the funds I work for have such a policy, but I have managed to convince them to get access via two-factor authentication. Still, I have to get separate permission from the IT provider of the pension fund to get access when I go abroad. That’s not always easy, but usually it works,” said Teunissen.

Part of the reason that pension funds are becoming more strict about IT security is the growing scrutiny from pension regulator DNB, said Nicolette Opdam, an attorney at HVG Law, who serves as a compliance officer at several pension funds. And even though DNB does not require funds to provide separate devices to each board member, many funds prefer to opt for this.

“Funds often choose to provide separate laptops because they want to be in control and be absolutely sure they meet the highest IT-security standards at all times. It’s not possible to guarantee this at all times when a device is used that does not belong to the organisation,” said Opdam.

She said: “In the end, it’s better to be safe than sorry. It’s perhaps not nice for people to have to carry around several devices, but in the end security and data protection are more important.”

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