However, Buck’s White says the role of a third party consultant to a fiduciary process must be handled delicately.
“You don’t want to be overlapping the fiduciary or secondguessing what they may be doing,” says White. “If the client has selected fiduciary management, you must respect the decision and prove to be a positive force, not constantly challenging the model to convince them to go back to traditional consulting.”
Monitoring can be light touch – annual meetings with quarterly reports – but a third party must remember they are not there to tell client they made the wrong decision. Aon Hewitt’s Cole also favours an intermediary being appointed to represent the trustees’ interests, but agrees much of the work can be done by trustees.
However, he advises going to market before requesting RFPs, because you do not really know what you want at that stage. Finding a fiduciary is not just about which to appoint, but whether you want or need one and then which you can work with.
“When you buy a house you see two or three, so approach two or three providers, give them all the relevant information and then ask them to come back with a solution based on the trustees’ needs – which should be bespoke,” says Cole.
Then, once you have received that information, decide which ones you prefer and get to know the processes, as well as the people involved.
“You would visit a house you’re considering at different times of day, so go and see them in action in their environment before getting the surveyor in to make sure the operational infrastructure is robust.”
Playing it safe
Determining what you want from a fiduciary manager is down to the individual scheme. MN’s Dellavedova has a mnemonic, which is SAFE.
“Each trustee group needs to come up with their own criteria, but they should satisfy their requirements according to service, alignment, focus and experience.”
In truth, the bespoke nature of fiduciary management means the tricky bit is understanding how a provider has performed for the scheme.
This is likely to be where a third party is likely to prove their worth, provided they operate within White’s professional parameters. We can anticipate continued growth, despite a recent Cerulli report on the European asset management industry suggesting a broadly negative perception of fiduciary management.
However, even those who remain to be convinced believe the regulatory environment makes fiduciary an attractive route and an additional hygiene factor for the sponsors who are backing these schemes.
But do not expect consensus. There are as many views as there are providers and while some are convinced the market will continue down all or nothing holistic mandates, others believe they will see assets sliced and diced to take some of the complexity away from trustees and investment committees who find themselves time-constrained and often lacking in governance budget.
As ever, it will be down to the trustee boards to determine whether they are looking at a bespoke tailored solution or the emperor’s new clothes. Scheme case study – what the Epson scheme inks of fiduciary management
Nigel Wildman, chair of trustees of the Epson UK Pension Scheme told portfolio institutional about his scheme’s decision to select a fiduciary model.
The Epson scheme is a relatively young, small defined benefit (DB) scheme, of around 500 members and under £50m in assets.
In 2011 it was closed to future accrual and a contract-based defined contribution (DC) arrangement put in place.
However, with an increasing deficit and spiraling complexity, the employer was finding the scheme something of a thorn in its side. With changes to the membership of the trustee board, there was a realisation the scheme was highly reliant upon advisers for the investment strategy and that the board was not able to react rapidly to changes – or opportunities – in the market.
Though the board was comfortable with the traditional advisory arrangement it had in place, during discussions on funding plans, the sponsor wanted assurances that investments were being handled in an efficient manner.
It was at this point the possibility of a fiduciary manager was raised and Ernst & Young appointed to assist the analysis and ultimately the appointment process. Though six companies were in the original mix, this was soon whittled to two strong candidates – SEI and one other fiduciary manager.
“Once the capability assessment had been conducted by Ernst & Young, there was a series of secondary questions that were needed to clarify who would be the best fiduciary manager,” says Wildman.
“These include basic things such as will we get good value from the arrangement and whether will be able to work well with the individuals involved.”
In the end, the Epson scheme trustee board plumped for SEI and this has resulted in an updated approach to its asset allocation and funding flight path.
“We expect to have less volatility in our investment strategy relative to where we were before, and we have less unrewarded risks,” says Wildman. “Though there are a lot more moving parts, and it is more complicated, we have a better degree of diversification and SEI can react to changes in the market when they occur.
“This is similar to a structure we were debating before the change, but there was no consensus about the path to take with the employer.
“However, undertaking the change through the fiduciary approach has in fact smoothed and greatly improved the relationship between employer and the trustees, the process and expectations are much more transparent for the employer.”
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