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Fiduciary management: The CMA review – a trustee’s perspective

Fiduciary management: CMA review – a trustee’s view

We discussed the impact of the Competition & Markets Authority’s decisions with Susan Anyan, a professional trustee from Capital Cranfield. Susan uses FM for a number of her clients, working alongside lay trustees. She has a broad perspective on its possible role for schemes.

Greg Wright


KPMG in the UK


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Fiduciary management (FM) pre/post Competition & Markets Authority (CMA)-men-in-white-shirt-blue-tie

On the role for FM, Susan believes this should reflect the trustee board’s “confidence, competence and resource” to manage the detailed operation of the investment arrangements. FM should not be seen as a way of reducing the time spent looking at investments; rather, it should be seen as a way to release time to focus on the key strategic issues. FM is not a small/large scheme issue; it is a governance issue. Sponsors often also promote FM if they feel the Trustees struggle to make good and timely investment decisions.

Susan is seeing a developing role for ’partial FM’”, where it is used for a certain asset class or alongside a separate strategic advisor. Another challenge is for FM providers to show their value when schemes are becoming fully funded and start employing de-risked portfolios. There will be less need for the asset classes where the diversification and day-to-day management that FM brings is important. The portfolios may be simpler and/or make greater use of LDI and CDI assets which, given their ’buy and hold’ nature, reduce the need for a fiduciary approach.

Perhaps in contrast to the CMA’s concerns, Susan’s experience has demonstrated that the issue of possible conflicts had been generally well managed by the integrated providers, with the CMA confirming issues that many trustees would already have been aware of. It was rare that the potential conflicts were not raised, indeed partial solutions sometimes needed to be drawn out of the providers. The CMA’s recommendations about changes to operational structures and use of marketing/promotional material are all helpful going forward.

Susan strongly believes in monitoring the provider once appointed. Regular reviews need not lead to a costly and time consuming tender exercise but they are helpful to benchmark a mandate’s features, terms and guidelines. In particular, fees have come down in recent years and older mandates may have become relatively expensive. Whilst her trustee boards have yet to replace any of their providers, monitoring an objective range of factors is helpful to identify whether a provider remains appropriate. Ultimately, her boards will make a change if the provider can no longer meet the Trustees’ needs, which may have changed since the original appointment was made.

Susan sees third party evaluators (TPEs) as having a useful role to play in both selection and monitoring, by drawing out the key issues and developments and acting as a “cool head”, bringing objectivity into what might otherwise be a very subjective process. Ultimately, an FM appointment ought to be a long-term partnership so it’s important to get it right.

Susan supports TPEs looking to introduce a more formal ratings policy for providers and specific funds. This can help provide a strong rationale for making a change or reviewing the terms of a mandate, as it would be clearer what has changed for the better/worse at the provider or fund.

Finally, Susan expects the FM market to continue to grow, although whether this will be at historic rates of 10-15% p.a. is unclear. She believes there are still many schemes with governance challenges who would benefit from FM. However, it is possible that growth may switch more towards partial mandates, particularly the use of FM “sleeves” in asset classes (e.g. private markets and insurance-linked securities) where the governance and access issues are most challenging.

In summary, Susan’s experience suggests that FM is being considered carefully and used in the right situations. The CMA identified a number of potential issues but well run Trustee boards were typically aware of these, and are likely to embrace the improvements that the CMA has recommended. The FM market can continue to grow post CMA but providers will need to adapt in places and perhaps be used in a more specialised role going forward.

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