Fiduciary Managers have tended to market themselves to plans with substantial assets (say £100m +). My interest is in the smaller plans where the need for Fiduciary Management is probably greater but the means to pay for the complex strategies commonly promoted lacking.
Talking with advisers and trustees of the smaller plans, I am struck by the reluctance of trustees to outsource decision making despite their acceptance that the strategies they are currently employing are sub-optimal.
Coming form an insurance background, I remember the days of the fully insured DB plan and can quite understand that today’s fiduciaries are wary of “insurers bearing gifts”.
The parallel with the DC landscape in the late 1990s is an interesting one. At that time there was a concensus that the bundled offerings of UK insurers were a little shabby and that the conscientious trustee would look for best in breed investment choices on third party administrative platforms.
Ten years later, the vast majority of new DC arrangements, even for FTSE 30 companies, are being established with insurers. The insurance companies have raised their game and delivered on their promises.
Yet the UK insurance industry has, by and large, ignored the opportunities to manage substantial residual assets in small UK DB plans, despite their capabilities.
Of course insurance companies will only provide 95% solutions. They will use passive pooled funds to provide better liability matching and packaged diversified growth funds to smooth the journey towards proper funding but these will not provide the precision of a top-end fiduciary service.
However 95% solutions can provide substantial risk savings on the liability and growth pots and insurers can deploy the expertise in fund administration they’ve established in their DC operations to lock-in gains and provide excellent reporting at a cost that small plans can afford.
The last point should not be underestimated. The UK insurers have massive buying power with the fund managers. They have embraced open-architecture becuase they can offer corporate DC plans funds, especially passive funds, at lower prices than many individual plans can buy directly. The impact of aggregating across their book has led to DC plans being offered on a fully bundled basis at a price that is uttelry compelling to sponsors and trustees.
Whether froma fear of annoying consultants, from lack of confidence in their communication skill set or whether they still mart from being driven from this market by the fund managers, insurers are missing an easy win. More importantly, small DB plans which need their help, are suffering from under-supply. How long before the insurance industry recognises the opportunity to manage out the long-tail of small scheme DB liabilities and provide some effeciency in what is one of the lest effecient area of UK Financial services?
As you may have guessed , I am posting with a degree of self interest. We are a boutique UK insurer and will be launching a Fiduciary Management service from July. I can give you a sneak preview of the approach we will be taking by referring you to a presentation we have put in the public domain.
You can view it on http://www.slideshare.net/henrytapper .
- Pension play pen lunches endorses Kay on corporate governance. (henrytapper.com)
- Sorting the pensions of the “squeezed middle”. (henrytapper.com)
- Investment Advice and Fiduciary Duties (businessethicsblog.com)