Rory Murphy, trustee chairman of the Merchant Navy Officers Pension Fund, tells Stephanie Baxter why trustees must take more responsibility and not shift blame onto advisers and managers.
Investment managers and consultants have been getting a lot of flak over the Financial Conduct Authority's (FCA) damning final report on its asset management study.
Conflicts of interests, low price competition, and lack of transparency on costs and performance, are among the many criticisms raised in the watchdog's June report. But while responsibility for failure certainly lies partly with managers and advisers, some think trustees must also take their fair share of the blame.
For Merchant Navy Officers Pension Fund (MNOPF) chair of trustees Rory Murphy, it is high time that trustees get their act together, not just service providers.
While he welcomes the FCA's report on the investment management industry's weaknesses, he points out there are many examples of managers and consultants delivering good results and value for money.
"We tend to think pension schemes are somehow different purchasers to when you buy something else, but we're not. The investment management and consultancy industries haven't gotten it all right, but it's wrong to paint them all with the same colour.
"Trustees have to take some responsibility. They are pretty conservative with a small 'c' and maybe a bit in of awe of the advisers. Who's running the pension schemes: the trustees or advisers?
He reminds his own trustee board that all the advisers and lawyers are doing is advising; the decision ultimately lies with the trustees.
"If you're not comfortable with every aspect of that decision, and the consequences and circumstances of it, then you shouldn't be taking that decision until you are."
Murphy likens it to buying a car or having a new bathroom fitted, where "you ensure you go to people who have good references and good track record".
"If you're responsible, even if someone else is doing the work for you, you want to make sure you're doing the right due diligence. It's a case of being buyer-beware," he adds.
It is important to look at the entire value chain, and consider the role and function of each link.
"While links can be looked at in isolation, someone has to look at the overall piece," says Murphy. "Advisers will sell their wares for the highest price they can; as a buyer I want it for the lowest price I can get. That's where the art of negotiation comes in."
Negotiation is vital
For his part, Murphy has the benefit of years of negotiating experience from his time working as a trade union general secretary.
"You negotiate the price, and if the price isn't right then you don't buy. Sometimes there's a herding instinct among pension funds to just get on and do it and then think that's the end of it, but it's not.
"We've got to get out of the habit of allocating blame; we've all got responsibility here, and we should not look to shirk and shift it. I wonder how many trustee boards will say in the future that it's not their fault but the adviser's.
"It irritates me - perhaps because I haven't been brought up in a pensions world. I'm in control, I decide what service I want and at what price; if the price isn't right I'll walk away and look for another provider. But from my experience as a negotiator, that doesn't happen very often as they want your business.
"If you don't do your homework, know exactly what you want and why you want it, if you don't negotiate a good price and get some form of warranty, then you must share some of the responsibility if problems occur. It's the consumer who will determine the activity and behaviour of the providers."
Poor governance by trustees has been blamed on many factors, notably the prominence of lay and member-nominated trustees, and the sheer number of small schemes. Murphy disagrees, however, and thinks these are just excuses.
For him, the strength of a trustee board is that it includes workers such as plumbers, doctors, pilots, bringing in real life experiences.
"We have a nice blend of experts on pensions and finance on the MNOPF trustee board, but the last thing I need is to be an expert. I need to be able to decipher the information, and scrutinise and analyse the advice I'm being given to make the right decision.
"Sometimes trustees have some knowledge, but when there's a gap they don't feel comfortable or confident enough to say they don't understand. I take the view that if I don't understand it, no one's going to understand it."
He concludes by saying: "You don't need more professionalised trustees; you need people who can ask questions and scrutinise what's being offered, so a decision is made for the right reasons."
Position Rory Murphy joined the MNOPF trustee board in December 2012 and became the chairman in September 2014.
Morningstar Investment Management (MIM) has launched a range of three multi-asset funds that will blend active and passive strategies to offer advisers low-cost solutions.
The government will set up an infrastructure bank to support investment and to co-invest alongside investors including pension funds.
The Retail Prices Index (RPI) will be reformed and aligned with the housing cost-based version of the Consumer Prices Index, known as CPIH, by 2030, the Treasury has confirmed.
Estatee agent denies a shareholder’s absence from voting is an issue, finds Minerva Analytics.