“Fiduciary management today lacks the objective metrics that trustees need,” said Shamindra Perera, head of UK institutional at Russell Investments. “Without clearer industry standards and more transparency from providers on performance, it is hugely challenging for trustees to evaluate services and feel confident they have made the right decision for their scheme.”
Russell Investments polled trustees about their experience of fiduciary management. Of those who had implemented it, six out of ten said performance was the most important consideration when they selected fiduciary managers, and 79% said performance was utmost when reviewing their services.
However respondents used a range of different performance measurements, from their scheme’s funding level and its performance relative to the legacy portfolio to absolute returns and the performance of individual mandates relative to asset class benchmarks.
Overall, trustees felt their fiduciary manager had met or exceeded their expectations 70% of the time, and many trustees achieved better rather than poorer control of investment decisions by implementing fiduciary management. Of those trustees who had considered but rejected fiduciary management, 44% did so because they were concerned they would lose too much control, and 44% specifically feared losing touch with the investment decision-making process.
However, 68% of those who adopted fiduciary management chose the approach so that they could spend time on investment issues more efficiently, and 54% believed it would allow them to pursue a more ambitious investment strategy.
Perera continued: “Fiduciary management is a serious undertaking and trustees need all the guidance and support they can get. It is not suitable for everyone but it can help many schemes achieve their funding objectives in a more risk and cost-controlled manner. Better communication on performance and the nature and amount of trustee involvement will help the fiduciary management industry in the UK mature.”
Russell Investments published a Fiduciary Management Guide which draws on the experience and advice of UK pension scheme trustees. Each section of the 10-point guide includes exploratory questions that trustees can ask themselves to help them through the process.
The survey was conducted by Winmark Research during the summer of 2013 and comprised an online questionnaire and follow-up interviews. Almost half of the participants were chairs of a trustee board and over 50% of respondents represented schemes with assets between £100m to £1bn.