Almost all defined benefit (DB) trustees show excellent understanding of financial concepts, but most boards lack diversity.
These are the conclusions in the first report on the Mapping the Trustee Landscape research published by Aon Hewitt and Leeds University Business School (LUBS) on 9 February.
More than nine in ten (93%) trustees and scheme managers correctly answered at least four out of five questions on time value of money, real versus nominal returns, compounding, diversification, and risk.
However, most trustee boards are predominantly comprised of men, with an average age of 54 and degree level education. Just over 80% of respondents were men, while 78% were educated at university.
The research was conducted in the second half of 2016 by an online survey of 197 DB trustees and scheme managers, as well as 10 interviews with DB scheme representatives.
Schemes surveyed ranged from small schemes with less than £15m of assets under management (AuM) to large schemes with more than £5bn AuM.
LUBS associate professor Dr Iain Clacher said the high understanding of financial concepts improves decision-making.
"In general, respondents had a good understanding of financial risk, and a high level of financial literacy, both of which are key to understanding complex investment decisions," he said. "These skills should assist their decision-making around costs and fees.
However he warned the homogenous make-up of trustee boards could reduce the strength of their governance.
"This concentrated demographic is a concern given studies have found that gender diversity on corporate boards helps strengthen governance and is beneficial for monitoring and the board decision-making process," he continued.
"The current profile of trustees may also create an environment where ‘groupthink' could emerge."
The survey also found that most trustees who responded had at least 10 years of experience.
Aon Hewitt partner Lynda Whitney said the increasing number of female trustees was encouraging, but that diversity was broader than simply age or gender.
"Dr Clacher's research shows that, today, one in five trustees are female - an improvement on research in 2006, which showed only one in 40 trustees were female," she said.
"However, diversity is not just about gender or age. It is also about diversity of approach and thinking and we can draw on research into corporate boardrooms which has shown that diversity leads to better decision-making and financial outcomes."
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