Part II - Aligning the Standard with trustees needs

This is the second in a series of short notes to be published over the next few weeks that explain how the IC Select Fiduciary Performance Management (FM) Standard works and how trustees can benefit from the information. 

The IC Select Fiduciary Management Performance Standard was, as the name suggests, initially designed and developed by advisory firm IC Select. 

Soon after the creation of the standard, a decision had to be taken as to whether this intellectual property should be exploited by IC Select to provide it with a competitive advantage in the selection and oversight of fiduciary managers - or whether it should it be developed as an industry standard.

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Roger Brown
The trustee perspective is provided by representatives from the independent trustee firms (BestTrustee, Capital Cranfield, HR Trus... Read More
Monday, 14 May 2018 15:50
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IC Select Fiduciary Management Performance Standard

Background

This is the first in a series of short notes to be published over the next few weeks that explain how the IC Select Fiduciary Management Standard works and how trustees can benefit from the information.  This note focuses on the background to the Standard.  Subsequent notes will cover:

  • Aligning the Standard with Trustees’ needs
  • How performance is calculated
  • Making sense of the composites and what to focus on
  • Understanding the standardised performance information
  • The impact of different methodologies for calculating liability benchmarks
  • Full and hedge adjusted liability benchmarks

The FCA and CMA have highlighted that trustees are not receiving the necessary information to allow them to assess performance and judge value for money when selecting fiduciary managers. This is one of the areas that is currently being looked at in detail as part of the CMA’s Investment Consultants Market Investigation which will report its finding in July 2018. 

These issues with fiduciary management performance are not new and have been widely discussed in recent years.

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There are no gift receipts in fiduciary management

There are no gift receipts in fiduciary management

This year I left my Christmas shopping to the last minute.  I would not recommend it.  All seemed well on Christmas Day with the usual smiles and joviality.  However, on Boxing Day the first hint of problems started to emerge. “Do you really think red suits me” was the opening gambit, followed shortly afterwards by “I am not sure I wanted a sweater anyway.”  All was not lost, as armed with the gift receipt, the sweater was soon replaced with a more appropriate item and harmony was restored.

Trustees may not be so lucky.  They do not get gift receipts that allow them to correct any problems from an agreement entered into in haste.  Nowhere is this truer than in agreeing a fiduciary management contract. 

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Trust me, I'm an expert

Trust me, I'm an expert

Is there a problem with investment consultants and actuaries already working with pension funds taking on additional responsibility as fiduciary managers?

The head of European distribution of one of the fiduciary management firms does not think so.  In a recent interview with IPE he said “a fiduciary mandate relied on a long term relationship, requiring a company trusted by pension trustees.  If you think from the investment consulting universe, aspects you’re buying from fiduciary management are those skills that exist in the investment consultant industry – for example, asset allocation decisions, decisions around liability management, plan design and implementation.”

If this were true and these skills do exist, then the trusted relationship would indeed be good reason to stay with the same provider.  The question is what proof is there that the statement is worth accepting or indeed what evidence is there to the contrary?

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The world of manager selection advice with no research

The world of manager selection advice with no research

Since the announcement last week that the Financial Conduct Authority would examine potential conflicts of interest in the investment consulting sector there has been significant comment about investment consultants promoting their own fiduciary management services.  It is right that there has been.

Investment consultants are appointed by trustee boards to provide them with independent advice in the areas of strategic investment, asset allocation and manager selection.  When it comes to manager selection trustees expect that the investment consultant will have carried out detailed research on the manager and a full review of managers in the sector before either recommending a manager or providing a short list of ‘best in class’ managers.  Trustees are protected from any failure in the process, as manager selection decisions will be diversified across a number of different asset managers.  The approach, although it does have some flaws, has worked effectively for pension funds for many years.

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