It’s a question asked by Karen Wake on twitter

@JosephineCumbo @henryhtapper @DominicLindley @greggmcclymont So … what is "independent"? We might be chasing a tornado here

— Karen Wake (@pensionmonkey) October 29, 2015

I’m not into chasing tornadoes so I’ll try to put the wind back in Pandora’s box! 

Independent is as independent does, in its purist form- independent fiduciary behaviour is altruistic, doing work for the benefit of others rather than the benefit of oneself. Having spent last night in the company of “Contact the Elderly”, I know that altruism happens. One speaker at its Golden Jubilee Concert said that it was “in the little acts of kindness she was able to do for elderly people, that she found meaning in life”. Virtue is its own reward.

So the concept of commercialising independence is difficult. We have seen recently instances where Trustees have taken their fees from the funds of the members they are suppose to be protecting, because they were in dispute with the plan sponsor with whom they were contracted. This does not seem to have any sense of altruism about it. Here independence is a concept with a legal rather than a moral definition.

Jo Cumbo was querying whether a pension trustee who is also a beneficiary of the trust can be considered “independent”. At a legal level, clearly they cannot be, they are conflicted between wanting what is best for them and what is best for the sponsors of the plan and indeed other members. At a moral level, such a trustee – typically member nominated- may show moral independence by putting him or herself at the back of the queue.

Independence is as independence does

Quite clearly , independent trustees – working in the pension space – are principally operating in a commercial capacity and their independence comes at the price of their fees. It may seem wrong to put a premium on independence but I think it is right to do so. Independent trustees are exercising their skill and knowledge on behalf of their members and are also considering the interests of other parties (such as the pension’s sponsor- usually the employer). Whether the cost of this work is met by the member or sponsor or both should be immaterial, what is being bought is skill and knowledge to ensure that the benefits of the plan are paid in full at the right time to the right people.

So I have no beef with paying independent trustees.

However, when the primary consideration of a trustee is to protect him or herself- either to ensure revenues or to minimise his or her personal liability, something has gone wrong. This may not be the fiduciary’s fault, but if that fiduciary has to question for whom they are acting- as happened recently (see yesterday’s post) , then any sense of independence has been lost.

Fiduciary means “the carrier of trust”, the fiduciary needs to be clear whose trust they are bearing and if there is a balance of power between an insurance company and a policyholder, it seems absolutely clear who is trusting who. Policyholders, the people with an insurance policy resulting from their employer establishing a personal pension plan on their behalf, are trusting the insurance company with their money. The “Independent” in the Independent Governance Committee means (legally) independent of either the sponsor (the insurer) or the policyholder.

But in a moral sense, the duty of an independent fiduciary, such as a member of an IGC is to protect the interests of those most at risk- the policyholders.

I am not a lawyer, I am sure that my distinction between legal and moral obligations is open to legal challenge. But we have a great history in this country of moral obligation , which extends beyond the law courts into every aspect of our daily living.

When I listened to the stories of tea parties for the elderly last night, it became clear to me that unless “independent trustees” have their moral compass properly set, no amount of legal rhetoric can properly describe them as “independent”.

For trustee read fiduciary, for trust board read independent governance committee. I have my moral compass, it is my father, a man who’s moral compass was set by his father before him. He is my definition of an independent fiduciary.

My father – a trustworthy man