PP speaks to Capital Cranfield’s Neil McPherson about his views on the effects that the CMA’s fiduciary management remedies could have on smaller pension schemes.
Professional Pensions asked some of the industry's leading independent trustees for their views on how the Competition and Markets Authority's (CMA's) remedies around fiduciary management could affect smaller pension schemes.
In the second part of this Q&A series, PP speaks to Capital Cranfield's Neil McPherson.
PP: Would you illustrate how you see the fiduciary management landscape and your concerns with the current model?
Firstly, some providers seem to forget that the whole reason to employ fiduciary management from a trustees' point of view is the funding position. For smaller schemes, however, there is an additional concern that the CMA review does not really address, which is bundled provision incorporating not only investment advice but also actuarial guidance and administration. Bundling all this together is potentially problematical both in terms of the provider and for the small scheme. Your appropriate actuary or appropriate administrator, even your appropriate investment adviser may not be the appropriate fiduciary manager for you as well.
PP: Do you think the CMA needs to review or demand change in bundled fiduciary management packages?
There are good and bad points about them. First, there is one I know that provides its clients with cashflow-driven investment, which it outsources to a major fixed income investor. Its small scheme client base would struggle to access the funds or the expertise of that fixed income provider directly. So, there is one direct, important value-add. However, say you have a bundled provider and you are not happy with its investment, but it is providing good administration, there are well-known capacity constraints in the administration market that may preclude you from jumping ship wholesale. And you might find if you were to go to a different, specialist fund manager for the investment, it may affect the cost you pay your bundled provider for the other services.
PP: Is this making trustees of small schemes avoid retendering?
Trustees are not stepping away from retendering as to do it can add value. You can have the same provider for three or five years and if you go out to tender it can bring you an improvement in pricing because the incumbent wants to retain the business.
However, there are costs to be aware of. As an industry, we are beginning to compile performance data and improve transparency for trustees to compare providers' track records. If you use an independent procurement firm, it adds a layer of cost. The CMA review does not come without issues or additional costs on provision that may be working perfectly well.
But we absolutely shouldn't underestimate the costs to the fiduciary managers - both consultants and fund managers - this is a significant burden on them as well. They are filling in endless requests for proposals, many of which could be regarded as spurious or with not much chance of converting.
Yet this is the opportunity to prove their worth, which many demanded from the CMA, both in terms of performance and service.
PP: Do you have any concerns outside of the CMA review?
Some pension schemes are considering a sole trustee model and there's a variety of reasons why. From the basic problem of recruiting lay trustees to a breakdown in the relationship between the board and sponsor. The scheme may be in very bad shape and needs professional help or be well-funded and just needs a steady hand on the tiller. The right type of fiduciary management fits very well with sole trusteeship as it is an agile solution.
However, sole trustees fall under The Pension Regulator's jurisdiction and its recent consultation had several questions, mainly due to the speed with which this part of the professional trustee sector is growing.