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Independent oversight of investment consultants and fiduciary managers remains low among defined benefit pension funds, despite mounting regulatory pressure and scrutiny of trustees.
This missing governance gap should be a priority considering investments account for 80 per cent of the total cost of pension fund ownership, and therefore should matter most to both sponsors and members.
Industry research shows independent fiduciary manager oversight remains low at around 22 per cent of funds, in contrast to more than 70 per cent of funds that now use independent evaluators to undertake selection exercises.
The situation in advisory relationships is even more alarming. Independent oversight of investment advisers is almost non-existent, despite these having the greatest impact on whether a pension scheme can meet its liabilities.
- The CMA Review highlighted the lack of demand side challenge by trustees of their investment advisers.
- As far as setting consultant objectives, trustees still seem to be 'kicking the can down the road'.
- It’s not sufficient for trustees to allow investment consultants to set, and mark, their own homework.
Andy Clarkson, operations specialist at IC Select, joins Professional Pensions editor and Schroders fiduciary management professionals to discuss progress in this important but complex area.
The presentation and Q & A discussed the concept of transaction costs through a fiduciary lens, why best execution is critical to managing transaction costs and explored how trustees should use and interpret transaction cost information – highlighting the common pitfalls to avoid when using transaction cost figures.
Key takeaways were the importance of disclosure and transparency which build trust in your investment provider and asking questions.
Professional Pensions Webinar link: Tune in now
IC Select were pleased to contribute to this excellent report by Clear Path Analysis into investment governance matters affecting DB pension arising from the CMA Orders and other regulatory guidance.
Published in April 2021, we draw attention to the opening interview by Carolyn Saunders, Partner and Head of Pensions at Pinsent Masons, which looks at Competitive Tendering of Fiduciary Managers.
At a time when DB investment adviser market reviews and oversight is near all-time lows it was refreshing to read Carolyn’s views on the value and importance for DB trustees to properly review their investment adviser and on the growing impact of ESG.
Quoting from the report, Carolyn comments:
“If trustees understand the wider market, they can challenge their own thinking and their incumbents’ thinking on their investment strategies.”
“Trustees now need to have a very clear line of sight and understanding of what is happening in relation to their investments and particularly in relation to ESG”.
In the roundtable debate, Anne-Marie Gillon, Head of Research at IC Select, acknowledges the strain on DB trustees and the need to delegate more of the investment complexity to the investment professionals. And in measuring the success of your investmentc adviser Anne-Marie and other contributors note that investment advisers:
“….should never ‘mark their own homework’ and independent evaluation of performance is very important.”
In this Professional Pensions blog, Donny Hay discusses the 9 June 2021 deadline for retendering fiduciary management services and proposes options for trustees to maximise the time to achieve the best outcomes for their pension scheme.
- Receive responses to invitation to tender from fiduciary managers by the start of June 2021
- If more time is needed, consider re-appointing incumbent on a temporary basis
- Then take additional time to consider all the bids at leisure with view to appointing a fiduciary manager on a long-term basis on the best possible terms later.
- In IC Select’s experience, the average fee reduction achieved from re-tenders has been 25% with the greatest savings over 50%.