A growing number of pension schemes are changing their fiduciary managers. David Blackman looks at why they may be switching
KPMG’s 2014 fiduciary management survey showed that all of the schemes with fully delegated investment management had moved their business.
These included the £120m Loomis scheme, which switched from Mercer to Russell Investments.
The so called ‘Big Three’ actuarial firms – Aon Hewitt, Mercer and Towers Watson – still control the overwhelming majority of fiduciary management mandates. And, according to KPMG, three-quarters of such contracts are not put out to tender.
Sion Cole, head of client solutions in Aon Hewitt’s delegated consulting services, believes most schemes are happy with their fiduciary managers, judging by his own firm’s research, which claims 99% satisfaction levels across the market.
He says: “The market has very high satisfaction levels. The vast majority of pension schemes are very happy with their providers, which is a big thumbs-up to the fiduciary management industry.”
Barbara Saunders, director at P-Solve, says: “A fiduciary relationship is based on trust. While you maintain that trust with a client, they don’t tend to look elsewhere.”
The trend towards change
However, according to KPMG the pace of switching is speeding up.
Its 2014 report, which is due to be updated soon, suggests that the proportion of new mandates resulting in a change of provider will have risen to 17% during 2015. By 2017, it forecasts that changing providers will have reached the commonplace level of 36%.
Saunders says: “As this market matures we will definitely see more movement.”
Hard evidence of this quickening trend emerged during the summer when the Sun Chemical Pension Scheme handed its £360m mandate from Mercer to Goldman Sachs Asset Management (GSAM).
There’s been some initial appointments where it hasn’t really been delivered”
This deal – the first secured by the US investment bank’s first UK-delegated investment arm – represented the biggest switch so far in terms of assets between fiduciary managers.
Providers are also reporting that more schemes are carrying out reviews of their delegated investment set-ups.
Patrick Disney, managing director of specialist fiduciary manager SEI, says: “[Schemes] are trying to find providers who better implement what fiduciary management is about. There’s been some initial appointments where it hasn’t really been delivered.”
People are able to see strengths and weaknesses of different offerings”
KPMG says the uptick, albeit slow so far, in switching stems from the growing maturity of the fiduciary management market. By 2017, it estimates that around 300 schemes will have had delegated investment in place for at least three years, by which point it is possible to take stock of whether an arrangement is working.
Will Parry, investment consultant at Xerox-owned Buck Consultants, says: “People are able to see strengths and weaknesses of different offerings. If they went in the first wave four to five years ago they are now looking to do a review process.”
In addition, an influx of new entrants since the first wave of fiduciary management contracts were signed five years ago means trustees now have a wider choice of providers.
As the market becomes more established you can take references about quality of service and delivery on goals”
And with a number of the leading fiduciary management providers changing hands, some trustees will be questioning the new owners’ commitment to what remains a relatively niche service.
“If clients don’t feel they are being well looked after, they can now look around what is a bigger market,” says John Finch, director at JLT Employee Benefits, adding that the market’s growing maturity means schemes are now better able to check up on a prospective fiduciary manager’s track record.
“As the market becomes more established you can take references about quality of service and delivery on goals. Testimonies will be quite important to building relationships.”