We use cookies to support features like login and allow trusted media partners to analyse aggregated site usage.
To dismiss this message and allow cookies to be used, please click "Continue".



Twitter board

Follow us
  • My week on Twitter ūüéČ: 1 Retweet, 2.63K Retweet Reach, 3 New Followers. See yours with https://t.co/mCw3VcMQGw https://t.co/78tC0GzGXxyesterday
  • Our cover story: CDC: A step into the unknown. Is CDC an unnecessary policy change when effort would be better spen‚Ķ https://t.co/QGHfTkiPP24 days ago
  • Newton ‚Äď Trend Setting: The Year Ahead in ESG ''We have seen notable client interest for sustainable products over‚Ķ https://t.co/OoXVLJ1BMp4 days ago
  • Our Latest ESG feature: EM governance: Breaking through. ''Those calling for better governance in emerging markets‚Ķ https://t.co/qk0vJpfpJL7 days ago
  • The February Issue is available online now! Our Cover Story - CDC: A Step in the wrong direction. Read more here:‚Ķ https://t.co/8xwHL9Nd2z7 days ago
  • RT @AonRetirementUK: What do we expect to see in the #ESG market over the next 12 months? Read the results of the @portfolio_inst panel of‚Ķ7 days ago
  • RT @PensionsSion: What are the pros and cons of building a global #equity portfolio? Find out by reading the @portfolio_inst Global Equitie‚Ķ13 days ago
  • RT @AonRetirementUK: Outcomes delivered by employer pension schemes now depend more than ever on levels of engagement. Companies must creat‚Ķ14 days ago
  • Our latest Roundtable: Cash-Flow Driven Investing is now live! Read more here: https://t.co/zBy7Gbiud9 https://t.co/KJTIgVssmG14 days ago
  • RT @BNPPAM_COM: 2017 was one of the most active hurricane seasons on record, causing up to USD 475 billion worth of damage. What are the in‚Ķ26 days ago
  • RT @PensionsTony: At the Aon London #pensions conference. About to start my workshop on how well #DC schemes are meeting the needs of #memb‚Ķ26 days ago
  • Andrew Wauchope talks to Mark Dunne about charities and their pension schemes, the secret of being a good trustee a‚Ķ https://t.co/xcdcxs61QL26 days ago
  • Enter the Dragon : China‚Äôs inclusion in the @MSCI_Inc Emerging Market index has caused little excitement, but, as L‚Ķ https://t.co/oy0EdSI6A828 days ago
  • The @InvescoUKinsti whitepaper: Responsible investing and active ownership. Invesco‚Äôs Bonnie Saynay and Henning St‚Ķ https://t.co/E3Gdh9eDSM33 days ago
  • Charlotte Moore looks at the reaction of financial markets to Brexit has already changed the shape of the relations‚Ķ https://t.co/6KH9jnWTtq33 days ago
  • RT @AonRetirementUK: Want to know more about the benefits of factor-based investing for your DB pension scheme? Aon‚Äôs next Investment Break‚Ķ34 days ago
  • Learn more about why everyone is talking ESG on our new ESG HUB, where we will be publishing our latest features pl‚Ķ https://t.co/Dg9FiwCPCn35 days ago
  • 2018: The year of the human?. Cyber crime, greater disclosure, fixed income, people and, of course, climate change.‚Ķ https://t.co/HMkzWcrFNy35 days ago
  • ''Building a global portfolio of equities could also provide much needed diversification'', discover why in our Glo‚Ķ https://t.co/y90GhLlmCD35 days ago
  • What is your stance on executive pay? is bigger really better? Read more in our new ESG feature:‚Ķ https://t.co/cUXMiCDuE560 days ago

Friday View: 17 October 2014

Alternatives to fiduciary management: opening up the debate

By Patrick O'Sullivan
Friday 17th October 2014

Fiduciary management is on the rise in the UK after migrating from mainland Europe. As it grows in popularity with UK defined benefit schemes, the benefits and concerns of adopting FM is coming under greater scrutiny.

Fiduciary management can have a role, but this of course depends on the varying and myriad objectives of respective pension schemes. Growing column inches and marketing budgets dedicated to fiduciary management have begun to create a perception, among some trustees, that fiduciary management is a panacea to issues around the outsourcing of investment objectives and governance. However, reality suggests that there is rarely a simple answer to a complex question.

There are a number of¬†concerns around fiduciary conflicts if trustees engage in¬†fiduciary management¬†‚Äď both on¬†the issue of cost, investment strategy and¬†governance.¬†At Redington, we¬†have seriously explored entering fiduciary management, however, we have opted to remain fully independent and conflict-free despite fiduciary‚Äôs potential transformation for our business. It¬†is time to open this¬†debate¬†not just¬†on the merits of¬†fiduciary management, but¬†on the¬†full spectrum¬†of options available to trustees and scheme sponsors¬†which includes the traditional advisory model.¬†It¬†should not be simply¬†a question of¬†whether to take¬†the fiduciary route or not, for there is no¬†‚Äúoptimal‚ÄĚ level of¬†outsourcing¬†that can be uniformly applied to all pension schemes.

Fiduciary management cannot work without fully considering liabilities, keeping in mind that the ultimate purpose of setting an investment and risk management strategy is to ensure that, firstly, assets grow to a sufficient level to pay out liabilities as they fall due and, secondly, do so with as little risk as possible to protect member security. For trustees considering fiduciary management offerings, a big question is whether the provider is good at setting strategy and has a proven track-record. The provider’s skillset should not just lie in implementing strategy.

Alternatives to¬†fiduciary management¬†can mean the best of both worlds for trustees ‚Äď they get scale from providers, but¬†they also get¬†clear lines of independence (and no revenue¬†share) between asset allocator and asset¬†managers.¬†Trustees¬†also¬†have greater control over investment¬†strategy through their¬†objectives¬†which they set and¬†adapt.

The costs of some alternatives are also very attractive compared to fiduciary management fees when fund manager costs are added to the underlying asset management fees. For example, we are aware of an alternative model recently implemented for a sub-£200m scheme with a total all-in cost of 0.32% for asset management and consulting fees. This model is fully bespoke, real-time risk managed at the scheme level, highly capital efficient and diversified across market and actively managed return sources.

The market for alternatives to fiduciary management is evolving.¬†LGIM‚Äôs¬†recently¬†launched suite of delegated solutions has fuelled considerable debate within the industry.¬†LGIM has followed the path of a number of providers after engaging with trustees and consultants.¬†While the¬†LGIM solution is not suitable for all schemes, we¬†feel¬†it merits attention as it achieves the advantages and associated benefits of fiduciary¬†management¬†without¬†the¬†associated cost and conflicts.¬†This is not fiduciary management ‚Äď but rather an alternative solution that makes a¬†lot of sense for pension schemes¬†of a certain size¬†with an LDI mandate.

Ultimately, there cannot be a one-size-fits-all prescriptive approach. Instead, a holistic engagement where asset managers, trustees and advisers share an integrated strategy has proven to be successful. Each of our pension clients is better funded since we engaged in an integrated approach using a traditional advisory model. This means that discretionary responsibility has not been devolved and there remains independent, objective thinking on external managers assisted by the role of the adviser. We fully anticipate that fiduciary management might be the best choice in some specific circumstances. However, trustees and sponsors should at least be aware that many of the benefits of fiduciary management can be achieved without giving the keys away.


Patrick O’Sullivan is director, investment consulting at Redington¬†



Leave your comment

View our comments policy

Please login or register with us to leave a comment. It's completely free!