Fiduciary management market sees lowest growth since financial crisis

A new study on the UK’s £142 billion fiduciary management market has found that it has suffered its slowest growth in a decade. According to the study, uncertainty surrounding a watchdog’s probe into the industry has slowed growth to its lowest rate since the financial crisis.

Fiduciary management is an approach to asset management that involves an asset owner appointing a third party to manage the total assets of the asset owner on an integrated basis through a combination of advisory and delegated investment services, with a view to achieving the asset owner's overall investment objectives. In practice, the label is currently only used in relation to the management of institutional assets as opposed to retail assets and in relation to the management of assets of pension funds in particular and insurance companies to a lesser degree.

Aon Hewitt, Willis Towers Watson and Mercer are the largest investment consultancies in the UK – known in the segment as the Big Three – and according to a recent Competition and Markets Authority (CMA) probe, by 2016, they collectively held just under half of all investment consultancy revenues in the nation, while this could rise in the future.

According to a new study from KPMG, that very CMA investigation into the trio seems to have impacted the pace of growth in pension scheme fiduciary mandates over the past 12 months. While numbers still increased, they did so much more slowly than in previous years.

KPMG’s report states that the UK’s fiduciary market now sits at £142 billion in assets under management, arising from a total of 862 mandates across the country. Researchers from the Big Four firm now estimate 15% of pension schemes now appoint a fiduciary manager. This represents a rise of 70 more schemes than in 2017. The CMA probe of the fiduciary management industry ultimately yielded little in the way of concrete change, but nerves relating to its findings seem to have contributed to the slow-down. 

Overall, new fiduciary mandates still saw a healthy 9% increase, and following the CMA’s conclusions, it might expect to rebound in the coming term. However, KPMG notes, this still represents he slowest growth in the sector since the firm began tracking the pension scheme fiduciary market in 2008. With figures now emulating a crisis year, analysts will enter 'wait-and-see mode' to observe whether this represents a blip rather than a signal for lower growth rates long term.

With regards to the market as a whole, Anthony Webb, Head of Fiduciary Research at KPMG, highlighted the growing importance of third party advice when hiring a fiduciary manager as something which can help boost the market. He expanded: “6.6% of new fiduciary appointments were assisted by independent advice – a slight increase from 6 0% in 2017. We believe taking independent advice is best practice and are encouraged to see that is now becoming established as normal practice too. However the number of pension schemes receiving independent advice after appointment on an on-going basis remains low at about a fifth. We think that more schemes could benefit by formalising the way they assess their fiduciary managers.”

Changing market

Further suggesting a time of uncertainty is approaching, the study found the industry is going through a sustained period of change elsewhere, and is adapting slowly in some regards. Engagement on environmental, social and governance (ESG) remains muted, even as the Department of Work & Pensions prepares to require Trustees to state their ESG policies in their SIP document from late 2019.

Just 45% of industry respondents said their firm had taken action on their ESG engagement, while only 1% of that was bespoke action. The rest consisted of light-touch reviews, while 42% of executives said they had taken no action at all, and 14% said they had only “thought about it carefully”.

To that end, Webb commented, “Over 58% of schemes engaged with their fiduciary manager on ESG-related issues in the last year. This itself is a mixed message, yet the extent of engagement varies widely between generic discussion to bespoke action… We expect many schemes using fiduciary management will be forced to demonstrate greater ESG engagement.”