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.
IC Select recognised the importance of transparency in universal performance and chose the second of these options. As soon as this position was recognised it became clear that to align the standard with the requirements of the fiduciary management industry, IC Select should not be solely responsible for establishing the guidelines for the standard’s implementation.
Instead, it put together a steering group for the development of the standard, comprising third party evaluator firms and independent pension scheme trustees.
The initial steering group included representatives from Barnett Waddingham, BESTrustees, Capital Cranfield, HR Trustees, KPMG, IC Select, LCP, Law Debenture and the Pension Management Institute.
Subsequently, a representative from the pensions practice at Eversheds was added, to provide legal viewpoints, and a representative from the CFA Institute, the global body responsible for setting performance standards for asset managers. A trustee from PTL Governance was appointed soon afterwards. The steering group has now become responsible for maintaining and revising the standard’s guidelines.
A key consideration for the Steering Group was whether to include fiduciary managers on the Steering Group. It was recognised that their knowledge of fiduciary management would be invaluable to the development of the standard. In addition, as compliance with the Standard is voluntary, it was important that the any guidelines could be effectively implemented across all fiduciary managers without significant additional costs.
However, concerns were raised that the inclusion of fiduciary managers on the Steering Group could lead to them endeavouring to influence the guidelines to the benefit of their firms. An approach has been developed which secures the input of fiduciary managers on issues under consideration but does not include them on the Steering Group in setting rules for the standard.
This is achieved by issuing consultation papers to the fiduciary managers to gain their input, which is followed up by forums which involve fiduciary managers where the issues are discussed. The feedback from this process is provided to the steering group to assist them in deciding how guidelines should be amended.
To ensure trustees can be confident that the information provided to them by fiduciary managers complies with guidelines for the standard, IC Select carries out verification on each manager. This not only checks that all calculations are in line with the standard, but also looks at the policies and procedures at each manager for implementing the standard and verifies that these are being followed when applying the standard.
As a result of the work of the steering group and manager verification, trustees can be confident that the IC Select Fiduciary Manager Performance Standard is aligned with their needs and that the data is robust.
The trustee perspective is provided by representatives from the independent trustee firms (BestTrustee, Capital Cranfield, HR Trustees, Law Debenture, and PTL Governance) on the Steering Group. These firms work with a wide number of different pension schemes and, consequently, bring invaluable insights on the needs of trustees to the development of the standard.