By Brian McCauley
Fiduciary Managers are playing a growing role in the institutional world. It is vital that, just as they would do with a fund manager, UK pension schemes understand the key attributes to look for in the hiring process and how to independently assess the ongoing success.
Pension scheme trustees conduct thorough manager selection exercises for investments in individual asset classes (such as global equities or property) that comprise only a portion of total scheme assets. It seems logical that it is of even greater importance that a comprehensive and competitive selection exercise is run for a fiduciary mandate, which may account for all of a scheme’s assets.
The holistic nature of fiduciary management solutions demands a detailed understanding of not only each trustee board’s unique requirements, but also how to best meet these needs in selecting a provider. This is made more difficult as an increasing number of providers are offering fiduciary management solutions with varying levels of delegation, customisation and charges.
The solutions offered in the marketplace are evolving rapidly. Pension scheme trustees and sponsoring employers looking at the merits of a fiduciary manager’s offerings can take comfort in employing a trusted, independent advisor to assist them in this complex assessment. These advisors will have the experience and expertise to understand how the underlying and interrelated components of each proposition would contribute towards achieving the stated objectives of each individual client.
The selection criteria should start with a review of the resources available and management’s role in ensuring that all the underlying components of the solution are able to work effectively, without undue constraints or conflicts. In addition, the firm’s commitment to offering fiduciary management solutions and the viability for the business over the long-term is crucial. Other factors to be considered in the selection of a fiduciary manager include the level of tailoring offered, the quality of the team, the involvement of firm-wide resources, and an assessment of the adopted investment process.
Is a fiduciary manager’s self-assessment a robust process? Having selected the appropriate manager, trustees and independent third party advisors need to continually assess performance and level of satisfaction throughout the lifetime of the appointment. From the selection exercise trustees will have a clear understanding from the outset of how a fiduciary manager operates and expects to perform; with this it is possible to critically assess performance of the fiduciary manager on an on-going basis. Performance can be assessed in a number of ways: risk-adjusted return metrics; asset returns relative to traditional relevant market indices; peer-based comparisons; or a more holistic funding level development.
In addition to performance, the ongoing suitability of the provider should be challenged. As the fiduciary relationship evolves and as the marketplace evolves, it is critical to independently ask if the manager is going to meet the scheme’s objectives in future. Are the resources, processes and fees still appropriate for the scheme? Ideally trustees and their independent advisors should meet with the appointed fiduciary manager on a regular basis to discuss issues arising from these investigations, consider formal advice on the ongoing suitability of the fiduciary management arrangements and comment on alternative opportunities to reduce or manage investment risk.
Both the selection and ongoing monitoring of a fiduciary manager needs to be undertaken in the context of a pension scheme’s specific requirements from the outset. Moreover, the level of complexity and wide-reaching nature of the offering requires a high level of expertise and experience to get under the bonnet and assess the capabilities of the providers in the market. With rigorous and independent review, trustees can take comfort their chosen solution remains fit for purpose.
Brian McCauley is head of fiduciary evaluation at Buck Global Investment Advisors
Comments