Fiduciary management use by pension schemes grows

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.

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.