PP speaks to CBC Pension Services' Michael Clark about his 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 fourth part of this Q&A series, PP speaks to CBC Pension Services' Michael Clark…
PP: Was there a need for the CMA investigation?
Clark: Sadly, yes. I think it was required because even if the procurement model wasn't broken, it wasn't transparent and being opaque in the 21st century in the world of pensions is not a good place to be.
PP: Do pension schemes make brave decisions on the choice of fiduciary management providers if they don't use a professional trustee?
PP: Is mandatory tendering is going to help?
Clark: Well, that's where the devil in the detail is going to come in. Mandatory tendering may lead some schemes to go through the motions, sticking a couple of names on a tender list and then say "Hey, we've done it". One of the major weaknesses of this is that there's no policing of the tender process.
PP: To what extent do you think that the cost disclosure proposals in the CMA report will help?
Clark: In theory, it's a good idea but in practice, one of the reasons why you go down the fiduciary management route is because you get a rate of return that is applicable to your scheme. We don't want to go back to the bad old days where you had a standard pension fund return and everybody got measured against this standard pension fund return.
PP: So it needs to be more individual than that?
Clark: The whole point of the The Pensions Regulator's, integrated risk management strategy and all the stuff that's been done subsequently around scheme funding, is that the rate of return that you should be seeking should be consistent with your covenant and the ability of your sponsor to fund. What concerns me is that some schemes with fiduciary management are actually targeting quite a low rate of return because they de-risk a lot and things like that. And if you've got another scheme that's got a more aggressive strategy, then it skews the numbers.
PP: IC Select has been working towards, and has now produced, its fiduciary management standard in terms of reporting. Will it go some way towards making it more transparent?
Clark: I certainly hope so. I think IC Select has shown some really impressive thought leadership in this area. And sadly, it's taken a relatively small firm in Edinburgh to shake this industry up a bit.
PP: Has the CMA investigation changed the way that trustees look at fiduciary managers?
Clark: I'm not sure it's changed the way that trustees look at fiduciary management. There are trustee boards out there that we work with think that fiduciary management is the best thing since sliced bread and there are others that think it's the work of the devil.
PP: Are trustees now more empowered by the CMA's investigation to decide whether fiduciary management is right for them?
Clark: I think it enables them to have a better conversation with the sponsor because trustees don't do fiduciary management without the sponsor's support, at least, not in our experience. You'd be very brave to use the word again, from a trustee perspective, to do that without getting the support of your sponsor. And some finance directors are suspicious about fiduciary management. Again, I think one of the reasons why they're suspicious in the past has been this lack of transparency which hopefully now has been reduced and so therefore there'd be a better traction to get FM moving.
PP: How can fiduciary managers help pension schemes?
Clark: Know your clients and report accordingly. Some clients like 20-page reports with lots of words and other schemes I know work with a piece of A3 paper, folded in half, some pictures, some graphs and not many words. So communications need to be tailored.
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…