We need a new model trustee

This morning I published a short piece on how the Mansion House reforms empower trustees to be bolder and take exert power on behalf of members. It was inspired by Dalriada’s David Fogarty, a trustee who recognizes that if trustees cannot add value , they should consolidate their schemes so that member outcomes can be improved.

David Harris has asked a sensible question on Linked in which deserves a proper response

Henry Tapper are trustees regulated entities ? Can they serve on a multiplicity of MT boards? Will we see Trustees insisting on adequately designed retirement income solutions from providers … ? All good questions as the market continues to consolidate ….

My response is that though MTs are complex, the responsibility of trustees is simple, as David Butcher AMAPPT points out. The worst thing a trustee can do is to consider him/herself powerless. Ultimately the duty is towards the member. When the only responsibilities of the employer are to make a defined contribution and maintain compliance with the AE regulations, then the trustees focus must be even more on the member and the outcome, that is where the risk is!

As for being regulated entities, the Pension Regulator has it within its powers to censure and punish trustees, but generally this is not needed. Guidance rather than the COBS rulebook prevails. But TPR is aware of the risks that trustees manage and of the evolution of those risks as markets develop. DC pensions have evolved and the VFM framework reflects this, we are creating the difficult second album.

Managing risks and opportunities is more than managing cost, opportunities usually come at a price, which is why it’s the outcome not the cost – that matters most.

David Butcher who is both a master trust trustee and a member of an IGC comments

I agree entirely that the management of strategic risks and opportunities is central to the trustees role of adding value to outcomes, that is absolutely the right focus 👍

I suspect that what David Harris is getting at, is that the granularity of trusteeship – knowing y0ur members – is lost in a multi-employer schemes where hundreds if not thousands of employers may be involved. It’s true, Master Trusts are less cozy.

But I don’t think that much value was ever gained from a cozy relationship between member and trustee- a lot of conflicts arise where schemes are managed with individual members in mind and those conflicts tend to work against the rank and file member. This has been the argument for member nominated trustees in the past. I suspect that we need to think in terms of “consumer-orientated” trustees – which is what every MT trustee should aspire to.

Herein lies the opportunity for a new kind of trustee to emerge, one not afraid to stand up for “value” and champion the rights of existing members to better value through investment into investments!

This will inevitably bring about its own conflicts, especially where a scheme is being marketed on price. This is the conflict that the Pensions Regulator has to be aware of. We are seeing now “twin defaults” operating with some providers. A low cost default that invests in passive funds and listed securities and a value default that is paraded to purchasers to gain entry to the price parade. So long as these approaches are flipped, consultants and trustees can be gamed by marketing departments intent on assets at all costs.

The new model trustee may not survive in small DC schemes. But trustees exiting to consolidators can use their powers to ensure that to facilitate that exit, the consolidator is operating on a value not a “cut-price” basis. If I was a regulator , I would start by questioning why a trustee who determined  consolidation on a price-parade, acted in the member’s best interests. This may sound interventionalist but it is no more so than TPR’s behavior in the DB market these past 15 years.

Undoubtedly, the new model adviser is going to need to be convinced that value can be achieved by “paying more” and those trustees who believe the arguments put forward in the Mansion House reforms are “purely political”, have every right to say so. There will be a minority who think this way and healthy conflict on boards about the price of value is good news. It is clear that investing in productive finance at any price is not in the member’s interests, GAD’s assessment is that unless a radical cut in private market fees can be achieved, there is no positive outcome on the horizon. The new model adviser will continue to manage schemes with an eye to the true price of the assets and funds purchased to build member pots and pay member pensions.

But Master trusts that swerve the Compact and continue to market schemes purely on price, will needs contend with trustees who may consider this a conflict too far. The mindset will need to change if we are to sign off on the difficult second album.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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