Fiduciary Management service – what does it look like?
For a trustee, beginning your partnership with a fiduciary manager is one of the most important decisions you can take – some have likened it to getting married! Here we explain what you should expect from your fiduciary service and why.
A note from Paul Wharton, Head of Fiduciary Management Clients, UK
'I am thrilled to announce that Russell Investments has won another award in the Fiduciary Management (FM) space. Ahead of nine well-respected industry peers, Pensions Age have honoured us with the Fiduciary Management Firm of the Year for 2018. Today's blog looks at the ins and outs of what to expect from a high quality fiduciary service and is a great example of what we aim to provide for our fiduciary clients.'
Fiduciary Management service – what does it look like?
The latest KPMG Fiduciary Management survey showed that for the FM market grew for a 10th consecutive year in 2017. With a number of providers in the market offering a wide range of options, it is more important than ever to fully consider all the factors when selecting a fiduciary manager.
For a trustee, beginning your partnership with a fiduciary manager is one of the most important decisions you can take – some have likened it to getting married! With the fixation on funding levels, sometimes one of the most significant aspects when looking at a FM provider – the relationship – is overlooked. Are pension schemes setting their expectations high enough? Below are some practical considerations for clients assessing the service quality of their fiduciary partners.
Are pension schemes setting their expectations high enough?
Commitment to you from the start
Without harnessing a strong relationship, fiduciary managers cannot truly understand the client and what they want to achieve. Trustees need bullet-proof trust in their FM provider given that they are delegating some decision-making responsibility to them, and they need to feel this trust from the start. The best FM providers should take the time to recognise the unique situation, and gain a true understanding of the underlying motivations and concerns. This is often best with a face-to-face, in depth approach.
Ask the right questions
What are your funding aspirations? How strong is your sponsor covenant? What is your time horizon? This scene-setting develops into further, more nuanced questions, such as the preference for risk, preferred asset classes etc. From here, trustees and the FM provider can carefully analyse a full spectrum of options, and create a long-term strategy with you. Ultimately, not every client situation is the same, and there certainly is not a “one-size-fits-all” solution.
A transparent journey
Qualitative measures, such as the way fiduciary managers communicate and support clients through changing market conditions and scheme-specific challenges, can be just as important as quantitative results.
Behind the numbers
Knowing and understanding the story behind the numbers is vital, with full transparency strengthening the ongoing relationship. It is often not enough for clients to be offered a quarterly meeting cycle update on past events. Clients need to be able to continually monitor their portfolio in real time to ensure risks are being managed, that they hold the right strategy and remain on track to achieve their goals. Why shouldn't reporting and data access echo the speed and efficiency in which the mandate's investments decisions are being made and implemented for you?
An effective provider will take a proactive approach to clients, with actionable market insights that could affect asset allocation decisions.
An effective provider will take a proactive approach to clients, with actionable market insights that could affect strategic decisions. This can be facilitated through interactive, online tools. For example, a bespoke FM portal uniquely tailored to each client can provide quick, easy access to all the mandate's key metrics and market information.
For those less tech-savvy, getting hold of detailed reports that don't overwhelm can be difficult. Providers as a group have often over-complicated pension matters, making them inaccessible to many. Collateral that explain the drivers behind the change in funding level in a more graphical and easy to interpret way ensures clients truly understand their portfolio.
If it's easy to identify the why decisions your fiduciary manager has made were taken, and the impact they have has, it's one less thing to worry about.
Commitment to the wider industry
Ensuring trustees can navigate the complexities of a pension fund investing today can be difficult, but it is also hugely rewarding. For example, we deliver free tutorial sessions for pension fund trustees; frequent sessions that aim to improve trustees' understanding on areas from implementation to governance. Our commitment is not just to improving pensions for our clients, but across the industry.
A balance of quantitative and qualitative value
Overall, it is not a question of if, but how FM providers help trustees manage the challenges that they are facing. Your scheme's funding level and its progression, i.e. quantitative results, are a key determinant of success. As we've noted before, dynamic portfolio management and innovation can be highly rewarding if harnessed correctly.
But, for a happy fiduciary marriage, your partner needs to live the journey with you, truly grasp your situation and be sensitive to your needs.