A fiduciary manager simplifies and improves the management of the pension scheme significantly by supporting trustees with information and advice on setting the investment strategy and then implementing all aspects of the agreed strategy accordingly. The result is an effective governance structure with clear accountability and true control by trustees.

To appreciate in more detail what fiduciary management is and how MN can assist in running your scheme, we need to look at a traditional Trustee setup in the UK and the challenges that trustees face:

The Traditional Governance Model  

The traditional model that has evolved in the UK is that trustees not only set the strategy, but are also responsible for implementing the strategy.  As the number of asset classes and managers within the asset classes has increased in search of diversification, the following governance model has resulted:

This governance model has three major weaknesses

Lack of Strategic Focus

As complexity has grown, trustees are spending an increasing proportion of their time on implementing the strategy (e.g. managing and monitoring an increasing number of specialist managers), leaving too little time for setting and evaluating the strategy.

Lack of Accountability

As trustees delegate parts of the strategy to an increasing number of specialists, who is accountable for ensuring that the implementation as a whole delivers the strategic goal?  Trustees simply don’t have the time to manage the many different specialists on a continuous and integrated basis.  Trustees can rely on advice from consultants, but who can trustees hold accountable for the day-to-day management of the overall implementation?

Lack of Timely Decisions

When risks materialise and when opportunities emerge, who can the trustees rely on to pro-actively take actions in the interest of the scheme? Neither trustees nor consultants are equipped to manage the balance sheet on a day-to-day basis. But markets don’t wait for the next board meeting or consultant’s advice.

The Fiduciary Management Model

Fiduciary management simplifies and strengthens pension scheme governance by supporting trustees with information and advice on setting the strategy and then implementing all aspects of the agreed strategy accordingly. The result is an effective governance structure with clear accountability and true control by trustees, as illustrated in the following diagram:

In the fiduciary management model, trustees continue to set the strategy following advice from the fiduciary manager.  The fiduciary manager is responsible for implementing the strategy, managing the implementation of the strategy on a day-to-day and integrated basis, and is accountable to the trustees for the results.  The trustees therefore retain full control. In fact, the trustees gain real control by having access to the information, know-how, and expertise of a team that is aligned with the trustees’ interests to implement, monitor and coordinate the day-to-day investment activities of the selected asset managers and other service providers.  The result is that trustees regain their strategic focus, can hold the fiduciary manager accountable for the implementation of the strategy and the results, and can delegate some decision-making power to the fiduciary manager in order to achieve more nimble and timely decision-making.

Viewed differently, a fiduciary manager plays a similar role to an in-house team.  An in-house team is simply not economically feasible for many schemes, but a fiduciary manager is a feasible alternative.  And even for larger pension schemes that have an in-house team, fiduciary management can often provide a better solution at a lower cost and operational risk (e.g. key man risk) compared to an in-house team.