There are now over 70 master trusts in the UK.  Everyone agrees that most are and will remain sub-scale. This is a concern to a risk-based Pensions Regulator and to others keen to restore public confidence in pensions.

The main reason for the proliferation of master trusts is the desire of advisers to get their services and “best ideas” embedded in the product. By setting up and operating the master trust, advisers can implement their consulting in the product that delivers workplace pensions in retirement.

The same dynamics are driving large actuarial consultants such as Mercer and  IFA networks such as Lighthouse. As the Regulator has said, the barriers to entry are low.  Until and unless we see the Master trust Assurance Framework in place and the Governance requirements outlined in the DWP Command Paper enacted, advised master trusts will multiply.

But come 2015 and 2016, as the governance going gets tougher, will the appetite to provide services continue? Putting your staff in an advisory master trust is a bet on the survival of your adviser’s appetite against what look significant regulatory headwinds.

Those who argue for the vertical integration of consultancy services in master trusts point to the success of fiduciary management in the management of Defined Benefit Schemes. But DC is different. In DB, the risk reverts to the sponsor (or the PPF), the risks in DC revert to the member.

Even where independent trustees are in place, conflicts of interest abound. It should be noted that many of our leading ITs are former consultants. With no independent over-site, consultants are accountable to these independent trustees- who they pay. The accountability to the sponsoring employer is minimal and I worry whether this governance model is truly robust.

These conflicts are recognised within the consultancies themselves. A recent conversation with a leading DC consultant revealed deep concern that her integrity as an independent consultant was being compromised by her having to promote an in-house solution.

For me as an external consultant, in-house solutions simply create confusion . How can I gauge what is best for my client when I cannot be clear about the adviser’s offering? My attempts to research advisory master trusts have met at best with with disinterest and at worst with hostility!

Finally the best ideas of advisers are unlikely to be better than the best ideas of those running “independent master trusts”. While consultants can point to a lack of TKU in some DB schemes making the outsourcing of scheme management to them a commercial imperative, they cannot do the same in DC.

Indeed the leading master trusts are at the cutting edge of DC “thought leadership” and are implementing world-class strategies with remarkable value for money.

In a market with strong capacity, implemented consultancy is unnecessary. Advisers will struggle to demonstrate value, will struggle with the new governance standards and will struggle both internally and externally to avoid conflicts of interest.

At a time when pensions are changing fast, we need advisers to be advising, not managing.

The number of master trusts is likely to contract over time and advisers considering establishing a master trust should take stop to consider whether the business case really stacks up.

This article first appeared at http://www.pensionplaypen.com/top-thinking