Engaging with investment consultants and fiduciary managers

Engaging with investment consultants and fiduciary managers

Shona Harvie, Partner, Pension Funds
Engaging with investment consultants and fiduciary managers

The Pensions Regulator (the Regulator) has launched a consultation on, guidance on engaging with investment consultants and fiduciary managers. This follows a Competition and Markets Authority's (CMA) investigation into the area.

The CMA found low levels of tendering when first moving into fiduciary management. They noted that it was difficult for Trustees to access and assess the information needed to evaluate the quality of their existing investment consultant. In addition the costs of switching out of fiduciary management were high and there was a lack of cost transparency. 

New duties for trustees have been introduced by the CMA from 10 December 2019, including:

  • Tendering for fiduciary management services when 20% or more of scheme assets are delegated. This duty will also apply to existing arrangements that have not been made as a result of competitive tender.
  • Setting strategic objectives for providers of investment consultancy services.

The DWP is currently consulting on bringing these new duties into legislation, after which the Regulator will be tasked with regulating compliance with the requirements. The DWP consultation can be found here and closes on 2 September 2019.

Draft guides

Four Trustee guides have been drafted by the Regulator.
  • Tendering for fiduciary management services.
  • Tendering for investment consultancy services.
  • Setting objectives for providers of investment consultancy services.
  • Choosing an investment governance model.

Guides on tendering

These guides set out key principles, considered by the Regulator as good practice for approaching a tendering exercise. The principles include; considering appointing a third party to assist, understanding the full range of market opportunities, selecting potential providers, agreeing selection criteria and performing site visits.

Guide on setting objectives 

This guide states that putting objectives in place allows trustees to be better positioned to assess the quality of the service they receive. The objectives trustees set should be bespoke to a scheme and relevant to the services received. The method and regularity for assessing adviser’s performance against these objectives should also be assessed, with reviews conducted at least triennially and after any significant change to a scheme’s investment strategy and objectives. 

Guide on choosing an investment governance model

This guidance addresses matters Trustees should consider when choosing an investment governance model – investment consultancy or fiduciary management. The guidance aims to support trustees to understand their investment governance capability and highlight key matters to consider when deciding on an appropriate level of delegation that will support them to achieve their objectives. The guide focuses on full investment consultancy and full fiduciary management but recognises there are other solutions which trustees can consider to improve investment governance.

Trustees are increasingly considering entering into various types of fiduciary arrangements, to reduce the investment governance burden. Trustees need to ensure there is sufficient oversight and monitoring of fiduciary and consulting arrangements, as it is Trustees who are ultimately accountable for the arrangements.

Next steps

Responses to the consultation on the draft guidance must be submitted by 11 September 2019. Full details on the consultation can be found here

If you would like advice on your scheme’s governance issues, please contact your usual Crowe contact. 

Contact us

Shona Harvie
Shona Harvie
Partner, Pension Funds Group