This article was published in Professional Pensions| 17 May, 2022
In the world of defined benefit pensions, just like anywhere else, pursuing improvement is a continuous process.
Boards of pension trustees will have long ago set out strategic investment objectives for their investment consultant or fiduciary manager, after the Competition and Markets Authority (CMA) made the process mandatory in December 2019.
But how many of them will have revisited and adjusted those objectives, and how many will have independently assessed how well their investment adviser has lived up to them? For us at IC Select, needless investment underperformance has been the enemy of pension schemes for too long. We believed that the CMA's decision was a potential game changer. In truth, while the rules have changed, too much of the game remains the same.
Your fiduciary manager will happily tell you how much it costs to execute trades on behalf of your scheme’s investment portfolio. But that doesn’t necessarily mean that you, as a pension trustee, are getting the full picture about whether those trades are being carried out efficiently.
While it’s easy for trustees to feel overwhelmed by the amount of information their manager provides them with, it’s the quality, not the quantity, that counts. Getting the right detail – whether the trades were aggregated or crossed with others to cut costs, for example – can save a scheme money and so lead to benefits for members.
Of course, not all fiduciary managers execute transactions in the same way. Those that handle the trading process themselves can and do measure and report the efficiency of their performance; they know exactly how they execute securities deals.
When a manager uses a third party, it will assess and monitor that third party’s handling of the execution, but in practice it is unlikely that the fiduciary manager will scrutinise its efficiency in terms of costs.
Whatever their approach, all fiduciary managers will report on execution costs, using templates set up by the Cost Transparency Initiative, the independent body backed by the Pensions and Lifetime Savings Association, Investment Association and Local Government Pension Scheme Advisory Board.
Collaborative efforts can sometimes yield the best results. A significant number of fiduciary managers have forged strategic partnerships with the custodians of their clients’ scheme assets or the providers of services around them.
Managed well, these relationships can bring tangible benefits to pension trustees – cutting costs, reducing operational risks, and providing opportunities to foster innovation. In a rapidly changing world, strategic partnerships can also help fiduciary managers scale up their businesses, further enhancing the services they can offer to schemes.
As pension schemes and the issues they face become more complex, we at IC Select believe that trustees should consider how well placed their fiduciary manager is in this area. Does it have what it takes to adapt and innovate in response to changing client needs and developments in markets and regulation?
This article was published in Professional Pensions| January 25, 2022
Being open about making mistakes can sometimes be unappealing, but all too often it’s in the interests of everyone concerned.
When we compiled our latest survey of the operational capabilities of fiduciary managers - the results of which we published today (25 January) for the first time - it was striking how little the market would tell us about what happened when things went wrong.
We asked managers for details about the compensation they'd paid to clients in the wake of operational errors. Payments, when made, are typically small, particularly in relation to the size of the assets that are being managed.
This article was published in Professional Pensions, b| January 25, 2022
More than three quarters of the fiduciary management industry endured control failures in 2020 despite their claims that operational processes ran smoothly in the thick of the pandemic, IC Select finds.
The oversight and selection firm's survey on the operational capabilities of fiduciary managers found that 77% of fiduciary managers suffered an increase in instances where their operational controls or processes went awry at the start of the pandemic.
The total number of specific failures surged by 174% in 2020 compared with the previous year, it found.