Released as part of its investigation into investment consultancy and
fiduciary management, the report found that advisory and asset management fees
are often open and subject to negotiation, and there is a wide variation in the
costs incurred by schemes for similar services.
The lowest fees tend to be paid by schemes that are more engaged,
defined by the CMA as those that use tendering processes, third-party
evaluators, or have a professional trustee on their board.
“Whilst a lot of [price] variation is attributable to basic
characteristics of the service received, such as whether the scheme purchases
more services, we have undertaken some analysis which demonstrates that levels
of engagement also influence market outcomes in terms of prices,” the report
For example, among schemes moving into a fiduciary management mandate
with the same company that provided its investment consultancy services,
engaged schemes paid around 25 per cent less than disengaged schemes.
However, few schemes demonstrate sufficient levels of engagement to
bring their advisers down on fees.
In keeping with the findings of its earlier paper on trustee engagement,
the CMA found that “a significant proportion of pension schemes do not appear
to be engaged”.
Good negotiation is essential
While it was unable to map out the impact that trustee engagement also
has on the quality of services provided and the end returns for scheme assets,
the competition watchdog theorized that “our analysis could understate the
extent to which engaged schemes receive better market outcomes than disengaged
The report offers a somewhat unsurprising conclusion for many in the
pensions industry. Caroline Escott, policy lead on investment and defined
benefit at the Pensions and Lifetime Savings Association, said effective
negotiation is always likely to result in a better price.
“For the institutional investment advice sector to work well, and for
schemes to get the best value for money, it’s vital trustees actively engage in
the process of appointing, monitoring and scrutinising their fiduciary
management and investment consultancy service providers,” she said.
“Although we know there are some excellent examples of good practice by
trustees in this area, we agree more must be done to address the variation
across trustee boards,” Escott added.
Cost should begin to come down
In fact, trustees’ struggle to attain value for money in DB has been
evident for some time, according to Donny Hay, director at oversight and
selection specialist IC Select.
The Pension Protection Fund’s Purple Book shows that despite
multi-billion employer aggregate deficit repair contributions since the early
2000s, scheme funding has worsened on a section 179 basis.
“If you were to judge success as, ‘Are we actually fully funded?’, it’s
been disappointing,” said Hay.
Increased focus on costs and transparency is likely to benefit the
industry as a whole, he said: “When you shine a light on costs and people are
more aware of what they’re paying, I think it will result in lower costs.”
Lay trustees can impact fees
While the CMA report makes the case for the engagement of independent
professionals, there are areas of best practice that lay trustees can also
The first is to remember that retendering can have an instant impact on
fees, as charges now tend to be lower than they were previously in the
still-young fiduciary management industry.
“Things are changing all the time, fees have been coming down,” said Hay,
pointing out that a scheme that has had the same fiduciary manager for five
years is “very likely” to achieve a fee reduction if it retenders.
Alan Pickering, chairman of professional trustee company Bestrustees,
agreed that shopping around was essential, ideally with the help of a
professional, although this need not necessarily be an oversight specialist.
“You should certainly use an appropriately qualified lawyer when
designing contracts that are complex and involve millions of pounds,” he said,
adding that with fiduciary management in particular schemes should pay
attention to the terms of exit from the contract.
Indeed, trustees may want to make sure that this expertise is contained
within their board,
for example by finding a lay trustee whose day job involves procurement or
here for the original article from Pensions Expert.