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Where is fiduciary management oversight headed?

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Following the release of the guidance from The Pensions Regulator (TPR) to assist pension trustees in reviewing fiduciary manager arrangements, it is an opportune time to take a look at, and share some thoughts on, the fiduciary manager oversight (FMO) sector.

In my opinion, one thing is very clear: trustees need to be advised by investment specialists who understand what is going on within different types of fiduciary management structures. A fiduciary management arrangement should be a combination of various aspects of helping trustees manage a scheme’s journey towards the trustees’ objectives. There will be a range of investment issues to consider, from the nature of those objectives, to risk management, portfolio structuring and the level of dynamism of the manager and beyond. These are complex subjects and very different in nature, and cannot be addressed by a simple tick-box exercise. There needs to be breadth and depth of experience and specialist knowledge to cut through the glossy marketing and reporting, to ensure trustees understand the key issues and are aware of the areas that should be challenged.

This is consistent with the direction of travel from the Competition and Markets Authority to bring all investment consulting and fiduciary manager services into the FCA’s perimeter. The CMA review presents the industry with an opportunity to ensure pension trustees are focused on their scheme’s objectives and to increase the monitoring of schemes’ progress towards those objectives. It also provides a structure for trustees to test that they are working with the right fiduciary manager (or not, as the case may be).

However, there needs to be some common sense applied when considering how the 300+ re-tenders are going to be managed in a relatively short space of time. It is clearly not in trustees’ interests to have a disengaged fiduciary manager community, which means the re-tender exercise would not provide valuable benchmarking for the trustees.

It will be critical to assess the fiduciary managers’ compatibility with each scheme’s circumstances and bring together those schemes and managers which are a good fit for each other. This will enable fiduciary managers to commit resource to developing proposals for the relevant schemes, which in turn will provide trustees with strong comparators to their current fiduciary manager.

There is a lot going on and much for trustees to take on board. The guidance from TPR is helpful but needs to be applied with common sense to make sure schemes and trustees benefit from these reviews.

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