The concept of sole trusteeship must overcome a number of challenges, especially as the model becomes more widespread, argues Paul McGlone
The rise of the sole trustee is a relatively recent phenomenon. Traditionally such appointments were limited to small schemes and windup cases, but they are now growing in larger schemes, with several £1bn-plus appointments now live.
The attractions are evident - efficient decisions, expertise, and a trustee that is available every day. But, like any growing idea, it faces criticism and questions. It took many years for fiduciary management to deal with the challenges it faced and be accepted as mainstream. Collective defined contribution is just starting to face similar.
There's no doubt that some of the concerns about sole trustees are based on outdated misconceptions. That said, challenges do remain, and the professional trustee community needs to - and many firms already do - recognise and tackle these head-on.
Lack of diversity and decision-making resting with a single person are often levelled at sole trustees. In reality, the sole trustee is no more a single decision maker than a named scheme actuary or audit partner. While not universal, most of the large trustee firms have formal arrangements to ensure decisions are peer reviewed or taken in conjunction with colleagues. And, while on diversity it is easy to point at the male, pale and stale stereotype of a professional trustee, that has already changed far quicker than it has on traditional trustee boards.
Conflict of interest is another hand grenade thrown easily into a sole trustee discussion. The sole trustee is appointed by the sponsor, who they are expected to hold to account, and who also pays the bills. And holding the unilateral power to hire and fire suppliers and advisers raises questions about whether commercial interests (appointing their own firm or having a commercial agreement with a third party) could influence such decisions. Again, the reality is more complex, but ultimately, we fall back on a belief that professionalism trumps conflicts. Every professional working in pensions has a conflict of some sort, and if we let ourselves be influenced by them then we won't have a career or a business for long. Professional trustees are no different.
Of course, the professionalism of the many is no protection against the recklessness, negligence, or commercialism of the few, so we do need checks and balances. As the Latin saying goes, "Who guards the guards?" The new professional trustee standards are a welcome step forward, but need to bed down and be properly tested, particularly as they apply to sole trustees.
A related concern is that of regular trustee review. We are often reminded by trustees that advisers should be reviewed on a regular basis to ensure competitive fees, high levels of service and continued suitability. Where are the arrangements to review sole trustees to ensure that they remain appropriate? To me this is still an open question.
But perhaps the biggest concern is not about the trustees at all, but about sponsors. A sole trustee may have diversity, group decision-making, well-managed conflicts, and professionalism, but if the power to fire them and hire someone more "sponsor-friendly" rests solely with the sponsor, with no consequences, then there is a problem that the trustee community cannot solve.
Whistleblowing responsibilities, such as those that apply to actuaries, may be a solution. Models such as multiple professional trustees on the board may be an option for the largest schemes but unaffordable for many. Master trusts are another possibility, with trustee appointments not controlled by the sponsor. But perhaps the most obvious answer is regulator powers, such as those we're still waiting on due to delays in the Pensions Bill.
As with so many things, sole trusteeship will be right for some schemes but not for others. As a governance structure, it certainly has some advantages, notably around efficiency of decision-making but addressing the remaining challenges remains crucial.
Paul McGlone is president of the Society of Pension Professionals and partner at Aon
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