Stop making excuses on fiduciary management and demonstrate value

There are tensions and different approaches for sure, but such a description is a little dramatic. The range of options available to pension funds has increased significantly over the years and that has meant everyone has had to raise their game.

As an industry, we need to get better at demonstrating we have delivered a better result

For me it is more about whether the fiduciary managers out there are doing enough to deliver value in an open and transparent way – and that is not an easy question to answer.

Put simply, fiduciary management is where a pension scheme engages a third party to take on responsibility for all aspects of the pension fund management.

Working with a fiduciary manager effectively gives pension schemes access to a full time investment team – which is an appealing concept to many.

There is no denying that in recent years there has been a surge in the number of providers in this space, all jostling for position, providing pension funds with different options and approaches. But is this competition really making a difference to schemes?

Research produced by some market commentators suggests that a number of schemes are still just turning to their investment consultant to take on the role of fiduciary manager, rather than carry out a full search of the market. In these situations it is not obvious that an assessment of good value has been the driving force behind the appointment.

So why is this still happening when there is so much choice for pension schemes out there? Put simply, there is not enough focus on what fiduciary management can actually bring to the table – what the added value really is.

Assessing fid man providers

We are all familiar with arguments of the key features of this kind of relationship: reduced governance burden, increased investment and risk management expertise, more timely decision making.

But these are secondary benefits. What schemes really need from their fiduciary manager, and what trustees should focus on in terms of value, is someone who can deliver an improvement in their funding ratio whilst avoiding the big risks.

Trustees should be asking themselves whether their fiduciary manager can deliver a better result than an advisory approach. The answer must be yes, to make it worth doing.

So how do you define a better result? Keep it simple – keep the focus on assets vs liabilities, target a steady improvement in the funding ratio, without nasty shocks along the way. It sounds obvious, but this is a far cry from the experience of most schemes over the past 10 years.

The market faces a problem in that only a handful of participants seem keen to take the plunge and publish their live track record.

This means there does not seem to be much tangible evidence demonstrating that the firms vying for attention have actually delivered a significant improvement in the funding levels of their clients.

So the real battle we have on our hands is to get organisations to be more transparent about the added value they are providing.

As an industry, we need to get better at demonstrating we have delivered a better result, put the results out there for people to scrutinise and stop making excuses.

Emma Adair is head of client management at fiduciary manager Cardano