What is Fiduciary Management?

What is it?

There is an established trend in Europe including the UK, Netherlands and Ireland for pension funds to package all or nearly all of their investment duties into one assignment for a single provider. This is called Fiduciary Management, Outsourced Investing or Implemented Consulting. This service is provided by both consultants and investment managers.

For Defined Benefit Schemes, it replaces the traditional model in which:

An investment consultant develops an investment strategy with the trustees and then helps to implement and oversee the ongoing management of the investments
An investment manager or investment managers carry out ongoing management of the investments.

By:
Appointing one provider to implement all of the above on behalf of the trustees.

For Defined Contribution schemes, it replaces the traditional model in which:

An investment consultant recommends various investment strategies and fund options for members and then helps to implement and oversee the ongoing management of the investments
An investment manager or investment managers carry out ongoing management of the investments.

By:
Appointing one provider to implement all of the above on behalf of the trustees.

Why would trustees want to outsource the investment function to a single provider?

There are material potential advantages, among which can be:

Improved governance
Efficient use of trustee time
Quicker execution of strategy*
Potential cost efficiency
Access to broader sources of asset management

*For Defined Benefit schemes where a de-risking plan is in place, quicker execution of asset sector changes can be of particular importance to trustees.

Is there a conflict ?

Yes. When the investment manager and consultant are no longer completely separate, the management of the investment portfolio lacks the independent oversight function formerly provided by the investment consultants. This is why Verus provides its independent oversight service for Fiduciary Management to give control back to the trustees.
In all forms of Fiduciary Management, investment details are taken away from the trustees’ table; that is the governance benefit of such an approach. It means, however, that somebody independent must carry out sensible checks on those very details.