What is fiduciary management?

Fiduciary Management for UK Pension Schemes

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Fiduciary management is an investment governance solution that involves the trustees delegating certain elements of the investment process to an investment expert – the fiduciary manager.

The fiduciary manager can be expected to employ the best practices in pension scheme investment management. This means managing the pension assets relative to the liabilities employing techniques such as hedging interest and inflation risks, maximising investment diversification and de-risking as market conditions allow. For a number of reasons, not all trustees have the governance budget or access to the economies of scale to implement these best practices – the fiduciary manager does.

Benefits of delegation

In our experience, under the traditional advisory model the majority of investment governance time is often spent on decisions such as: our UK equity manager is underperforming, should we replace them and, if so, with who? Whilst such decisions are important, research has found that manager selection only accounts for about 10% of risk and return – getting the right asset allocation is far more important.

By delegating certain elements of the investment process to a fiduciary manager, trustees can spend their time on what makes the most difference.

Also, under a fiduciary management structure, a pension scheme’s asset and liability values can be monitored daily with the benefit that decisions to lock in profit and remove risk can be made more quickly. This can be an important tool in the face of rapidly changing market conditions.

Interchangeable names for fiduciary management

One final point is that you often hear the terms implemented consulting, delegated consulting, delegated de-risking, solvency management etc. Our view is that these terms are essentially different descriptions of fiduciary management and should be included under the same umbrella to ensure that trustees and sponsors are aware of the wide choice of solutions at their disposal.