Mark Hodgson, head of investment consulting at Premier, comments on the 9 June deadline for pension schemes to complete retendering exercises for fiduciary managers representing more than 20% of scheme assets.
The Competition and Markets Authority’s order for schemes which have not run a competitive tender process for their fiduciary mandate to do so was well-intentioned and designed to create greater competition in the industry.
However, as the pensions market shrinks, the industry continues to fight for market share through consolidation. This has made it harder for fiduciary managers to differentiate themselves and, as an unintended consequence, schemes now have less choice than they did before.
No time to retender
There will be large numbers of schemes who have yet to retender their fiduciary mandates and no longer have the time to complete a robust process. These schemes may be more likely to cut corners and complete a basic pricing comparison before staying with their current manager.
A full retendering process, involving a long list, short list and individual manager interviews can take many months. Schemes which haven’t started yet won’t have any chance of compressing this process and completing it before 9th June. If a scheme doesn’t retender before the deadline, in theory the manager can no longer work for them. It remains to be seen whether leniency will be granted to schemes that can demonstrate they have at least embarked upon a review.
Doing it right
An inequality of resources between big and small schemes is likely to have hampered the latter to complete a robust process. Large schemes have the resources for a full fiduciary manager selection process, but smaller schemes may have been reluctant to spend three months on a review just to end up back where they started.
In these scenarios, a basic price comparison exercise may look attractive as a condensed process. The potential for this to reduce costs will be welcomed by the scheme, but it may not be the best outcome in terms of offering.
We urge schemes to focus not just on competitive pricing, but on the suitability of the fiduciary manager for the scheme’s unique needs. Schemes must consider the manager’s capabilities in relevant asset classes, like alternatives if higher returns are still needed, as well its performance track record and ability to match cash flows. They should also look at the quality of reporting and benchmarking, and the value-add of additional services, such as trustee training.
The fiduciary manager retendering deadline is imminent, but it’s vital schemes approach the exercise with care. Cutting corners now may well lead to worse outcomes and more work further down the line.