Aon survey defends fiduciary sector

More than two thirds of schemes use a beauty parade to select a fiduciary manager, and trustees’ focus on costs is dwindling, according to an Aon survey published this week.

The report found that of 179 schemes polled by Aon, 68 per cent used a beauty parade to select a fiduciary provider, with 73 per cent using due diligence and 64 per cent using a request for proposal process. Forty-four per cent used advice from an existing adviser and 42 per cent relied on advice from a third-party evaluator.

These findings contrast with the findings of the 2015 KPMG fiduciary management market survey, which found that 75 per cent of mandates were awarded without a fully competitive tender in 2014. KPMG’s 2016 report did show some improvements in terms of competitive tenders, with 33 per cent of new appointments advised by an independent third party in 2016, compared to 23 per cent in 2015.

The top three most valued qualities cited by trustees were a clear investment process, cited by 52 per cent, a proven track record, cited by 49 per cent and investment experience, cited by 42 per cent. Fees remain relatively low in the list with only 17 per cent, down from 24 per cent in 2016, of trustees citing them as key quality indicator.

The report amounts to a robust defence of fiduciary management published within days of the expected referral by the FCA of the investment consultancy sector to the Competition and Markets Authority.

The Aon report says fiduciary management amongst sub £100m schemes has leapt from 28 per cent in 2011 to 52 per cent today, with an increase from 15 to 45 per cent for £100m-£1bn schemes and from 17 to 40 per cent for £1bn+ schemes.

Aon’s research found 23 per cent of scheme members described their overall experience as excellent, with 65 per cent saying it was good, 10 per cent saying it was satisfactory and just 2 per cent being unsatisfied.

Satisfaction levels were highest for client service and relationship, considered excellent by 47 per cent of respondents.

The ability to make swift and incisive decisions is being increasingly appreciated, the report suggests, with 51 per cent of pension professionals highlighting this benefit, up from 37 per cent last year.

Aon Hewitt senior partner and head of European distribution Sion Cole says: “The results of the survey are in line with what we are observing and experiencing in the market. With trustees more time-pressed than ever on investment matters – 73 per cent spend just five hours or less a quarter on investment – the need for expertise has never been more evident.

“But the past year’s market volatility, mainly driven by uncertainty due to geopolitical events, has also demonstrated the benefits of daily attention and proactivity towards actively managed and therefore changing investment portfolios.

“90 per cent of the survey respondents cite transparency of performance and risk as an important feature when selecting a fiduciary provider, while 85 per cent also stress transparency of costs and all fees. It’s also pleasing that we continue to see trustees implementing robust and diligent assessment processes when they look to select a fiduciary provider.

“We are also very aware of the challenges faced by pension scheme trustees and, together with the Leeds University Business School (LUBS), we have been doing research to understand their decision making processes as we feel it is essential for improving non-regulatory scrutiny of the asset management sector. The research with LUBS revealed that trustees focus first and foremost on investment strategy and asset allocation, with value for money and fees coming second and third respectively. These results are very similar to the responses obtained with this survey.”