The current market investigation into the fiduciary management sector by the Competition and Markets Authority (CMA) makes the publication of this guide timely. Fiduciary Management is a governance solution and it has been growing in popularity in recent years. Xafinity welcome this guide and believes it is important for each scheme to understand their objectives and governance challenges before deciding on the right governance approach.
André Kerr, Head of Fiduciary Management Oversight, Xafinity said: “It is overly simple to classify fiduciary managers in three categories suggesting each is homogeneous. This is like saying all cars are the same because they get you from A to B. All 17 fiduciary managers could help schemes achieve their objectives, but each will give you a very different journey. You must look under the bonnet to understand the differences of each offering.
“The guide implies the need for fiduciary management is greatest from schemes with assets under £250m but this is too simplistic. The appropriateness of fiduciary management is driven by the governance challenges that are to be overcome. The decision whether or not to use fiduciary management will have a huge impact on a scheme’s journey – the decision as to whether it is the right approach shouldn’t be taken lightly.”
André Kerr continues: “A robust selection process should be followed when appointing a fiduciary manager. Governance challenges are usually very scheme-specific in nature. Since fiduciary management is a governance solution, it is critical that any selection starts with the whole of the market. The selection process should aim to find the fiduciary manager who can best achieve the long term objective and solve the scheme’s individual governance challenges. This requires the use of an Independent Oversight Provider who conducts detailed research and due diligence across all fiduciary managers.
“A fiduciary manager will typically employ complex assets used in a sophisticated way. It is important trustees understand their performance and whether they’re adding value. Best practice would suggest the trustees have an independent third party with investment expertise to provide this oversight. It is key to understand where value has been added, and if the fiduciary manager is likely to add value if market conditions change.”
André Kerr concludes: “In our view the PLSA guide paints fiduciary management as being suitable for all schemes. It doesn’t highlight some of the areas that need careful consideration, and how trustees can ensure they follow a robust process leading to an informed and appropriate decision.
Fiduciary management is a governance solution that may or may not be the best option for a pension scheme. Trustees need to decide what they’re trying to achieve, and what are the barriers. Only then can they assess whether fiduciary management is right, and if so, pick the right fiduciary manager for them.”
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