Fiduciary management use by pension schemes grows

09 September 2015 Consultancy.uk

Almost half of the UK’s largest pension schemes now use a third-party fiduciary manager, research by Aon Hewitt shows, despite questions as to whether their members’ interests are being served by such arrangements. Large schemes are also taking part, with a concern voiced that the long term nature of the contracts requires a more careful selection process than may be being provided.

Third-party fiduciary managers are now engaged with more than half of the UK’s pension schemes, yet questions remain about whether the interests of members are served through such constructions. In a recent survey from Aon Hewitt, 142 of the largest pension funds in the UK were asked about their use of fiduciary management services. Almost half (46%) of those surveyed, 66 schemes with assets of £60 billion, indicate they now engage a fiduciary management service – up from 18% in 2011.

Although many more such fiduciary management contracts are being awarded, criticism has been directed at the practice. Research by KPMG last year reveals that 80% of awarded contracts lack a competitive basis for their assignment. The firm’s report states that the lack of a competitive tender process remains “uncomfortably high”, with as a consequence that a considerable number of agreements have been entered into that may be unstable or underperforming.

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However, Partner and Head of European Distribution at Aon Hewitt, Sion Cole dismisses the claims that many such contracts are entered into without adequate competition. According to Cole, 85% of Aon Hewitt’s fiduciary management contract clients have been involved in a competitive process before being selected.

According to Cole, the research shows that the fiduciary management uptake is particularly high among large pension schemes – those with assets above £1 billion – doubling from 22% in 2014 to 51% this year. “Larger schemes are also recognising the benefits of delegating day-to-day portfolio decisions,” comments Cole.

Anthony Webb, Head of Fiduciary Management at KPMG, says that fiduciary management contracts need to be carefully considered to find a “good fit” as they tend to have a long life, with thereby a risk of being stuck in an unsatisfactory situation. “It can be daunting for trustees to have to evaluate a range of potential partners, but there are clear benefits in finding a bespoke service that fits a pension scheme’s needs at a competitive price,” he says.

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