Fiduciary management market sees lowest growth since financial crisis

03 December 2018

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.

Growth in the number of mandates

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.”

ESG and fiduciary management

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.”


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Late payment culture cripples productivity of SMEs

29 March 2019

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.