Trustees in the UK have been given the option to transfer their entire investment decisions onto actuarial consultant firms who will take responsibility for their advice through performance-related fees.
Watson Wyatt is to lead the way in radical shake-up of investment decision-making which is set to remove the problem Myners highlighted in his review of institutional investment trustees with too little investment expertise.
Under the service - which was launched last Tuesday - the consultant will pick the fund managers and determine the brief of mandates. The precise method used by trustees to measure its performance is still to be decided, although it will in part relate to assets under advice.
Watson Wyatt head of European Investment practise Nick Watts said the service has been in evolution for the last 12 months - the need for which has been justified by Myners’ review which called for more active management and an end to fund managers herding around the same asset classes.
“We have been evolving this service for a small number of clients. If you look at the governance budget that pension funds have at their disposal and then match it against the complexities of the things trustees are asked to do, they need as much access as possible to the skills and resources of consultants to properly fulfil their investment responsibilities.”
Accepting performance-related fees aligns the interest of the scheme and the consultant which, while the consultant believes will increase its client income in the long term, increases the responsibility advisers take for the advice it gives, Watson Wyatt said.
The industry has been in debate over the level of responsibility consultants must bear in the advice it gives its clients, the move towards accepting more responsibility will be welcomed by all investment consultants, according to William M Mercer UK practise head Andrew Kirton.
However, Kirton argued that under the trust law system, trustees will still have to retain overall responsibility for the advice taken. “Trustees can delegate the acts but under trustee law they cannot walk away from the decisions taken. If it all where to go horribly wrong trustees cannot hold their hands up and claim it wasn’t there fault - in reality it still will be.”
Kirton added: “Strategic asset allocation is an area trustees already take advice on - I would be surprised if a lot of trustees let go of it, in the same way they don’t simply take advice on benefits - they want to understand the decisions they are making and that I think will continue.”
By James Wallace
This week's edition of Professional Pensions is out now.
Industry Voice: Sponsored by Eaton Vance
BNY Mellon has launched a range of reporting tools to help institutional investor clients track and evaluate portfolio investments based on environmental, social and governance (ESG) issues.
PP speaks to BESTrustees director Heather McGuire about her views on the CMA's review into the investment consultant and fiduciary management markets.