PP speaks to BESTrustees director Heather McGuire about her views on the CMA's review into the investment consultant and fiduciary management markets.
Professional Pensions has interviewed some of the industry's leading independent trustees - asking them for their views on the Competition and Markets Authority's (CMA's) review and the remedies it has set out.
In the first part of this Q&A series, PP speaks to BESTrustees director Heather McGuire...
PP: Heather, do you think that there was a need for the CMA's review into fiduciary management?
McGuire: Yes, I think there probably was. I have always struggled with the conflicts of interest of investment consultants offering fiduciary management as well.
PP: What will be the effects of these proposals on schemes?
McGuire: I think that those schemes that have got a reasonable governance budget will embrace them. Probably, pre the CMA's report, they may have just gone with their incumbent.
PP: What are your thoughts are on the disclosure of costs and performance?
McGuire: It is quite difficult to get like-for-like fees where you've got schemes that are targeting different returns that are linked to their liabilities, because it's quite bespoke. Unless people are forced to do it, they're not going to do it.
PP: If you could have made any additional proposals or struck one from the record, in terms of this CMA's investigation, what would that be?
McGuire: I think the one where trustees have appointed a fiduciary managemer without a tender, and they've got to put it out to tender within the next five years. That's maybe a bit harsh. Schemes may incur some costs they weren't expecting. Or it might just become a tick-box exercise for them: they may say 'yes, we've tendered it and we've stayed with the ones we've got'.
PP: The CMA's report highlighted there's a high cost to switching fiduciary manager, in terms of switching over the management of the portfolio…
McGuire: Not to mention getting somebody to manage it for you - a transition manager to make sure it's done properly and that you've got the same assets at the end of it as at the beginning. And the new fiduciary manager might have a different way of delivering the same results. It might need a complete remodelling of the portfolio. And if you're a small scheme, you might be sitting there thinking that you don't want to disrupt it that much and pay hundreds of thousands of pounds for transition costs.
PP: This review is going to cause a lot of schemes to run tenders, or retender their current fiduciary mandate. At tender, what are the most important things a fiduciary manager should do, or should not do?
McGuire: I'm going through a tender process at the moment. The request for proposal that they've put out had some quite specific questions on it. The most confusing answers that came back were in relation to fees, trying to drill down whether we're comparing apples with apples.
PP: Would you encourage schemes facing a tender process to use professional trustees more, or at least an independent investment consultant or evaluator?
McGuire: Yes. On the scheme I'm working on, we have appointed somebody completely different who hasn't got a fiduciary offering, to run the tender process for us. They understand what they're doing but they're not in the business of selling their knitting to us. And it's not the incumbent either. But again, it's a reasonably big scheme at £300m, in terms of being able to afford the exercise. If you're talking a scheme of £10m, it suddenly becomes quite a big cost.
PP: Do you perceive a difference in the offering between what the CMA's report terms IC-FMs (investment consultant fiduciary managers) as opposed to AM-FMs (asset management fiduciary managers), and pure FMs?
McGuire: If you've got somebody who has just come in from the asset management background, then they might not understand particularly well that there's a liabilities side to the balance sheet as well. Typically, they have been looking at what assets perform well, whereas we're looking at our liabilities. That could potentially be what people might perceive as an issue.
PP: And a consultant would be more...
McGuire: A consultant would have that information but the downside on the consultancy side is that they're more likely to be completely conflicted because they're grown up from that background when they've been your consultant and now they're doing the fiduciary offering.
This interview was conducted as part of a major Professional Pensions research project on compulsory fiduciary management retendering, conducted in partnership with Goldman Sachs Asset Management. If you'd like to receive a copy of this report, please click here to register.
The interview series in full…