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Fiduciary management in the spotlight
03 March 2014
Better measurement of performance required to gain confidence of UK trustees
Improvements must be made to the way fiduciary management is
measured and communicated if UK trustees are to gain confidence
in the investment approach, according to a survey of 95 UK
trustees by Russell Investments.
"Fiduciary management today lacks the objective metrics that
trustees need," said Shamindra Perera, head of UK institutional
at Russell Investments. "Without clearer industry standards and
more transparency from providers on performance, it is hugely
challenging for trustees to evaluate services and feel
confident they have made the right decision for their
Russell Investments polled trustees about their experience of
fiduciary management. Of those who had implemented it, six out
of ten said performance was the most important consideration
when they selected fiduciary managers, and 79% said performance
was utmost when reviewing their services.
However respondents used a range of different performance
measurements, from their scheme’s funding level
and its performance relative to the legacy portfolio to
absolute returns and the performance of individual mandates
relative to asset class benchmarks.
Overall, trustees felt their fiduciary manager had met or
exceeded their expectations 70% of the time, and many trustees
achieved better rather than poorer control of investment
decisions by implementing fiduciary management. Of those
trustees who had considered but rejected fiduciary management,
44% did so because they were concerned they would lose too much
control, and 44% specifically feared losing touch with the
investment decision-making process.
However, 68% of those who adopted fiduciary management chose
the approach so that they could spend time on investment issues
more efficiently, and 54% believed it would allow them to
pursue a more ambitious investment strategy.
Perera continued: "Fiduciary management is a serious
undertaking and trustees need all the guidance and support they
can get. It is not suitable for everyone but it can help many
schemes achieve their funding objectives in a more risk and
cost-controlled manner. Better communication on performance and
the nature and amount of trustee involvement will help the
fiduciary management industry in the UK mature."
Russell Investments published a Fiduciary Management Guide
which draws on the experience and advice of UK pension scheme
trustees. Each section of the 10-point guide includes
exploratory questions that trustees can ask themselves to help
them through the process.
The survey was conducted by Winmark Research during the summer
of 2013 and comprised an online questionnaire and follow-up
interviews. Almost half of the participants were chairs of a
trustee board and over 50% of respondents represented schemes
with assets between £100m to £1bn.