Caffyns appoints fiduciary manager and overhauls portfolio

Advisory firm KPMG’s 2018 UK Fiduciary Management Survey estimated that 15 per cent of pension schemes now appoint a fiduciary manager, about 70 more schemes than 2017.

It’s important that trustees take the time to decide whether a fiduciary management approach is right for their scheme and to go through a process where they can objectively assess a broad range of possible providers that could include the use of a third-party evaluator

Caroline Escott, PLSA

The research also found that 9 per cent of defined benefit schemes selected fiduciaries in the 12 months to the end of June 2018.

In its annual report for 2018, automotive retail group Caffyns says its scheme trustees appointed SEI Investments Europe during the year, adding that the board, together with independent pension fund trustees, continues to review options for reducing the cost of operating the scheme.

Scheme restructures allocation

Caffyns’ report also reveals that the pension scheme has changed its asset allocation following the appointment of a fiduciary manager.

“As part of the migration of the scheme’s investment assets to the control of the fiduciary manager, actions have been taken to reduce the risk profile of the assets and more closely match the nature of the scheme’s assets to its liabilities,” it states.

Previously, the Caffyns scheme’s 2017 asset allocation included a diversified fund, a dynamic asset allocation fund, equity instruments, bonds and gilts.

The new 2018 asset allocation, implemented as part of the transition to a fiduciary manager, includes a liability-driven investment fund, a growth fund and the scheme’s existing dynamic asset allocation fund.

Small schemes can now access LDI more easily

Smaller pension funds have found it increasingly easy to access liability-driven investment through pooled solutions.

XPS Pensions’ 2018 LDI survey shows that LDI market operations have become more interwoven as fiduciary managers and platforms offer clients access to fund managers through their own pooled products, which are managed by an underlying fund manager.

Simon Cohen, chief investment officer at Dalriada Trustees, says there are more products becoming available that used to only be accessed by the bigger schemes.

“The investment technology used for fund structures that were being used for the bigger schemes is now being used for the smaller schemes,” he notes.

Ensure clear lines of accountability for fid man

Fiduciary management is often seen as a useful option available to trustees looking to improve the quality and speed of their investment decisions. However, it is not without risk.

The Competition and Markets Authority launched an investigation into the supply and acquisition of investment consultancy and fiduciary management in 2017.

In December 2018, it published its final report on the market investigation, maintain its finding of an adverse effect on competition in both sectors.

Caroline Escott, policy lead, investment and stewardship at the Pensions and Lifetime Savings Association, notes that this process can be beneficial for schemes – particularly those with fewer resources – giving trustees more time to concentrate on strategic scheme and investment decisions.

“We are now awaiting the implementation of the Competition and Markets Authority remedies to improve fee and performance transparency of the fiduciary management sector,” she says.

On February 12, the CMA issued a consultation on its draft investigation order on fiduciary management and investment consultancy remedies, which closes in March.

Trustees should not become ‘passengers’

Trustees need to carefully consider a range of factors before opting for fiduciary managers.

“It’s important that trustees take the time to decide whether a fiduciary management approach is right for their scheme and to go through a process where they can objectively assess a broad range of possible providers that could include the use of a third-party evaluator,” says Ms Escott.

Trustees from smaller schemes might have limited resources, mainly in terms of the time available to handle investments and assets, says Anna Copestake, a partner at Arc Pensions Law.

However, Ms Copestake adds that “it is a common misconception that once the contract is signed trustees become passengers, leaving the manager in the driving seat without any supervision”.

Mr Cohen notes that a major concern for schemes is the fees charged by fiduciary managers, emphasising that schemes need to look at what the underlying management charges are.

He also says schemes should consider “what the costs are for leading into the fiduciary arrangement and what the costs are for leaving the fiduciary arrangement, so they have clarity of what their fees are going to be”.

The CMA’s December 2018 report identified 37 companies that offer investment consultancy services and 17 that offer fiduciary management to pension schemes in the UK.

It announced a range of reforms for the investment consultancy and fiduciary management sector after finding competition problems.

Oversight crucial

Ralph McClelland, a partner at law firm Sackers, says: “Deciding to appoint a fiduciary manager is a big decision from a legal perspective because of the reliance trustees will be placing on a single manager.”

Trustees will also want to be thinking about provider conflicts of interest, particularly in light of the CMA’s work, he says, adding that it is also important to consider monitoring and access to information.

Barry Mack, director at Muse Advisory, points out that while the CMA’s review of fiduciary managers and investment consultants did not impose specific requirements for ongoing fiduciary management monitoring, “it seems likely that there will be a requirement to conduct regular reviews of fiduciary manager appointments”.

Trustees can either monitor their fiduciary manager themselves or hire a third party to help – although this can add an extra layer of cost.

Ms Copestake stresses that, to benefit from statutory protections, it is important that trustees employ a degree of oversight.  

“Boards that feel they don’t have the expertise within will look to a third party to help. Third-party oversight is a continually growing market and the CMA’s new requirements for mandatory tendering will only increase trustees’ understanding of the offerings out there,” she says.