While investment expertise remains the key advantage of fiduciary management - cited by 51% of the respondents - the ability to make swift and incisive decisions is increasingly appreciated, with 51% of pension professionals highlighting this benefit (up from 37% last year).
Now in its eighth edition, the survey remains the largest and longest-running of the UK fiduciary management market, this year attracting responses from representatives of 235 UK defined benefit (DB) pension schemes with
£255 billion of assets and equating to around 20% of UK DB pension scheme assets.
Sion Cole, senior partner and head of European Distribution at Aon Hewitt, said: “The results of the survey are in line with what we are observing and experiencing in the market. With trustees more time-pressed than ever on investment matters - 73% spend just five hours or less a quarter on investment - the need for expertise has never been more evident.
“But the past year’s market volatility, mainly driven by uncertainty due to geopolitical events, has also demonstrated the benefits of daily attention and proactivity towards actively managed and therefore changing investment portfolios.”
The process for selecting a fiduciary provider
This year’s survey reiterates 2016’s finding that DB pension schemes continue to apply a high degree of rigour and diligence in assessing, selecting and monitoring a fiduciary provider.
Schemes increasingly adopt a combination of different in-depth approaches, with face-to-face contact becoming the preferred option: 73% of respondents use due diligence (compared with 65% in 2016) and 68% opt for beauty parades. Formal RFPs have increased in popularity – now preferred by 64% of respondents compared to 55% in last year’s survey, while 42% conducted site visits as part of the assessment process.
Sion Cole continued: “Transparency is more important than ever. 90% of the survey respondents cite transparency of performance and risk as an important feature when selecting a fiduciary provider, while 85% also stress transparency of costs and all fees. It’s also pleasing that we continue to see trustees implementing robust and diligent assessment processes when they look to select a fiduciary provider.
“We are also very aware of the challenges faced by pension scheme trustees and, together with the Leeds University Business School (LUBS), we have been doing research to understand their decision making processes as we feel it is essential for improving non-regulatory scrutiny of the asset management sector. The research with LUBS revealed that trustees focus first and foremost on investment strategy and asset allocation, with value for money and fees coming second and third respectively. These results are very similar to the responses obtained with this survey.”
The responses from UK DB schemes also reveal the most important quality indicators considered when selecting a provider. The top three most valued qualities by trustees are: a proven track record (49%); investment experience (42%); and clear investment process (52%). Fees remain relatively low in the list with only 17%, down from 24% in 2016, of trustees citing them as key indicator.
As in previous years, the vast majority of respondents (86%) prefer to measure the performance of their fiduciary provider relative to their scheme’s unique investment objectives, rather than a generic industry standard.
Other key highlights of the survey findings are:
48% of schemes now have a fiduciary mandate compared to 18% in 2011.
Fiduciary take-up continues to increase among smaller schemes (those with £100m or less in assets), 52% of them use fiduciary versus 28% in 2011.
Over half (52%) of medium-sized schemes (between £101m and £1bn of assets) now have fiduciary, compared to 45% in 2016. Fiduciary management among large schemes (£1bn+ in assets) has increased from 17% in 2011 to 40% today.
98% of those using fiduciary managers continue to rate their experience as excellent, good or satisfactory.
Satisfaction with transparency of all fees and cost is cited as excellent, good or satisfactory by 95%.
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