Bob Campion says that if a full blown review is what it takes to re-build trust in the institutional investment industry, then so be it
A fiduciary approach is without doubt the most logical way of managing investments for the majority of defined benefit pension schemes. I say this without hesitation, having been a trustee myself and studied hundreds of different pension schemes large and small and discussed different approaches to investing with a wide range of professionals.
Now you may be thinking that I would say that wouldn't I, being a fiduciary manager myself, but the idea that a committee of trustees, the vast majority of whose day-to-day lives have nothing whatsoever to do with pensions or investing, are best placed to set and monitor asset allocations, and set and monitor fund managers, is absurd. Investing is complex, particularly for a pension scheme. It needs experience and detailed understanding. It needs a wide range of inputs and ongoing analysis. Above all it needs time dedicated to it - ideally every day, not just four days a year.
So why haven't more trustees opted for a fiduciary approach? There are now at least a dozen credible fiduciary managers to choose from, all with their own distinct styles and approaches.
The answer is simple: trust, or rather lack of it. Trustees do not doubt that a fiduciary manager would spend more time than they can afford managing their strategy or that they would do so with more expertise. What trustees doubt is whether the managers would act with the same impulse to protect the scheme and the members' interests. Why? Because they are sceptical about the motivation of their investment consultants and fund managers.
I generalise of course - there are many good consultants with healthy client relationships. But as a whole the industry is not well regarded, despite the expertise on offer. As a result, a service that could have a really positive impact on pension schemes is too often discarded out of hand.
That is why I support the FCA's proposal to bring institutional advice within their perimeter and for the Competition and Markets Authority to review the investment consulting industry.
This is an opportunity to sweep away trustees' lingering doubts and concerns and help them to decide what is best for their scheme. By regulating institutional advice and enabling a transparent and competitive market for fiduciary services, the FCA would inject a much needed dose of confidence into the industry. Hopefully it will encourage more trustees to take the next logical step - endowing advisers or fund managers with more authority to manage their investments, delegating day-to-day control to trusted fiduciary managers.
But to have this effect, the FCA will need to address a long-held, bitterly contested concern. Does manager selection add value?
To its credit, the FCA has already raised this question, and concluded that while manager ratings have some value in operational due diligence, there is no evidence that managers recommended by consultants perform better than those who are not.
On the other hand, the FCA recognises that what really matters is asset allocation advice - which is why the regulator is keen to start overseeing this service for the first time.
Time is of the essence, so it is vital that a review by the CMA is conducted promptly. But it is about time that an independent authority shone a light on institutional investment, so that improvements can be made and trustees can renew their faith in the industry.
Bob Campion is senior portfolio manager and head of fiduciary management at Charles Stanley
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