Fiduciary management as a governance solution
Industry Voice: A fiduciary management approach gives trustees a richness of information you can't get with a standard adviser approach, especially in times of market uncertainty, explain Russell Investments' David Rae and Paul Wharton
What are the continuing benefits of using a fiduciary management approach?
Paul: At its core, fiduciary management is a governance solution. Trustees, particularly of small to mid-size pension schemes, continue, in our experience, to struggle with the scale of work needed to implement appropriate investment arrangements. There is a lot of decision-making required - just to put initial arrangements in place. And then there's what follows, i.e. the ongoing management. Even larger schemes, who have dedicated internal resource, can struggle with the demands put on them. The world changes at pace and having greater support to assist makes sense for many schemes, regardless of size. By hiring a fiduciary manager, you're hoping to get a better investment outcome for your members; in terms of lower risk, better returns or a combination of both. By hiring a specialist who acts as an extension of their own resource, trustees can improve the likelihood of achieving their overall goals.
In light of the Competition and Markets Authority (CMA) review, do you expect to see positive transparency around tendering, performance and costs?
Paul: We recommend that trustees start by thinking through what they're trying to achieve when appointing a fiduciary manager. Historically, there may have been instances of schemes appointing a fiduciary manager because their contemporaries were, or because of encouragement by other parties.
David: The CMA review highlighted some important issues in the structure of the industry and the way in which fiduciary management services and investment consulting overlap. It looked at the potential impact that this overlap can have on pension funds, both in terms of selecting the best fiduciary manager or best investment consultant for their requirements, but also on the ongoing assessment of that provider. So, we very much welcomed the recommendations and the remedies that have been proposed by the CMA.
What areas should the trustees focus on when selecting and reviewing their fiduciary manager?
David: Trustees need to look at aspects such as the investment process adopted by the fiduciary manager, the people involved, the track record and then ultimately, the value for money that is expected to be delivered by the fiduciary manager. In this way, there are a lot of parallels with the process of evaluating other types of outsource providers.
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