Mandatory tenders for fiduciary management services should be conducted on a closed basis with no minimum threshold for the number of managers involved, the Pensions and Lifetime Savings Association (PLSA) says.
The trade body said these tenders should be aided by the introduction of a regulator-created ‘checklist' for trustees, who should then produce "light-touch, formal documentation" on the process and decision taken.
The recommendations came as the trade body responded to the Competition and Markets Authority's (CMA) provisional decision on its investigation into the investment consultant and fiduciary management markets, which said mandatory tenders should be introduced for first-time fiduciary management mandates, including existing ones.
In its response, the PLSA said open tender processes could "result in a high volume of boilerplate responses from the supply-side", omitting details on asset allocation and member communications. Instead, a "well-run closed tender process, supported by guidance which defines what best practice looks like", should be required.
Its policy lead for investment and defined benefit (DB) Caroline Escott explained the organisation's members preferred the closed approach.
"There was widespread member support for the concept of mandatory tendering, and for the tendering to be well-run but closed as opposed to open," she said. "The reasons for that are essentially around, if you have an open tender process, it is more likely to mean that supply-side firms end up producing an awful lot of what could be slightly boilerplate responses to the huge number of tenders that are suddenly coming their way.
"If that happens then you get the demand-side having to undertake a lot of work in looking at these responses."
There should also be no minimum threshold for the number of managers in the process, as this "runs the risk of turning the requirement into a box-ticking exercise instead of encouraging schemes to think through the best approach for their scheme", the PLSA said.
Escott said not mandating a minimum threshold would "encourage trustees to think in a really meaningful way" about who they approach in the tender process, and how that process should be run.
"It's really important for trustees to be able to make that journey themselves," she said.
However, PLSA members said guidance was vital to ensure the CMA's remedies were implemented well, with a checklist or to-do list for the full tender process deemed ‘helpful' by 81% of 62 pensions professionals who partook in a survey by the association earlier this month. Another 66% wanted best practice case studies, while a further 60% wanted a standardised template or request for proposal document.
Such a checklist would be one which reminded trustees what they should be thinking about. For example, it would urge trustees to consider using a third-party evaluator, the reasons they are approaching fiduciary managers, and how they are aligned with their scheme objectives.
While the trade body was largely support of the proposed remedies, it did however warn that they may be ineffective without wholesale governance improvements, noting "it seems to us that some of the demand-side remedies are more effective in tackling the symptom, rather than the cause: variation in the quality of scheme governance".
It reiterated an argument it made earlier this year that regulation could be "micro-managerial", focusing too much on outputs than inputs.
Escott continued: "It is possible to have a change in TPR's approach generally, thinking about how it can better mirror all the things we talk about, better mirror the corporate governance approach, and try to encourage a better system of governance in schemes."
The CMA has now closed its window in which to submit responses to its provisional decisions; further hearings will take place over the next couple of months, with a final decision required by 13 March next year.
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