ISIO’s latest survey on the state of the Professional Trustee market makes fascinating reading and Mike Smedley’s frank  assessment of the results made for a good use of time.

You can watch a rerun of the event from this video.

Much has changed in recent times for pension trustees, There’s no doubt that trustees are now much more knowledgeable about their responsibilities and compliant with the regulatory guidelines laid down for them.

ISIO’s  Trustee market survey  studies data and trends relating to both Independent Trustee providers and Corporate Trustees.

The question posed by this week’s audience at the Pension PlayPen was whether , for their increased professionalism, trustee board are doing a better job.

Professional Trustees are increasingly the compliance officers for DWP legislation and TPR regulation. Their capacity to use their discretion reduces as the burden of regulation increases.

The member nominated trustees are playing a decreasing role and sole corporate trustees are taking on the fiduciary duty for many more schemes.

Much of the work that trustees need to do can now be delegated to machines. Software packages like Otter.ai and Knowa can take minutes, create agenda and manage trustee workflows intelligently. This should in time lead to lower scheme costs but according to Mike Smedley , this isn’t happening yet with Trustee costs eclipsing those of other advisers as they take an increasing role in scheme management.

It is worrying that while all other aspects of scheme management are coming under the value for money lens, trustees seem to have no-one to scrutinise their costs. To whom are they accountable?

These questions were very much in play at today’s meeting of the Pension PlayPen.

Mike Smedley considered four market trends

1. Consolidation of trustee firms – there are now 10 principal firms providing professional services to the market
2. Commercialisation of what was a cottage industry; the three largest firms are now owned by private equity groups. The days of appointment over a cup of coffee or a glass of wine are over
3. Firms are increasingly differentiated by the range of services offered , by culture and house views
4. Regulation; TPR is increasingly looking to regulate the trustees rather than the schemes. This risks making trustees regulatory agents but makes for an easier life for the regulator- especially for the long-tail of small schemes.

These four points  can be explained by some simple charts included in the survey.

Consolidation is readily explained by this chart, which shows the concentration of appointments around the ten largest firms.

The commerciality of schemes is in part explained by ownership.  Dalriada, IGG and Vidett are all private equity backed, the people who work as professional trustees are increasingly referring to themselves as “career trustees”and are drawn from the pensions industry. The worry is that with a consolidation of trustee firms, the narrow range of backgrounds of professional trustees will continue the kind of group think that created problems in October 2022.

The question of “differentiation” is a more difficult one. In one sense, firms can be differentiated by the range of service offered. IGG for instance now offer the services of recently acquired communication consultants and a fiduciary management measurement service. They offer an integrated model which is increasingly competing with traditional consultants. Purer trustees such as BES and CCTL , offer just a fiduciary service. Firms such as Vidett and LawDeb offer both models on a hybrid basis.

If it was just down to services, procurement might be about “advisory fit”, but I suspect that firms are increasingly taking positions around the key issues of funding and strategy.

What will the Regulator do?

The Pensions Regulator has a number of options

1, Engage with this top 10

2 Create an inclusive pension register

1. Raise the bar for accreditation

The 10 large firms say they want to see more regulation but they don’t want it to be disruptive to their firms.

This is understandable. Creating a moat protects trustees from both litigation and competition. But with nearly 5,000 extant DB schemes there needs to be a radical solution to a capacity crunch. That solution appears to be the inexorable rise of the sole trustee

While the vast majority of schemes using a sole trustee, ISIO know of six instances where assets under sole-trusteeship exceed £1bn.

ISIO sees a future with greater standardisation of the trustee offering, greater commoditisation of the service proffered and scope to reduce trustees to a hardcore of professionals doing nothing but trusteeship,

Whether this is a market that works as well for the purchasers of trustee services remains open. ISIO;s view is at the point of purchase, the trustee market is currently competitive. But purchasers need to keep a wary eye open.

Concentration and capture

Professional Trustees are increasingly the compliance officers for DWP legislation and TPR regulation. Their capacity to use their discretion reduces as the burden of regulation increases.

The member nominated trustees are playing a decreasing role and sole corporate trustees are taking on the fiduciary duty for many more schemes.

Much of the work that trustees need to do can now be delegated to machines. Software packages like Otter.ai and Knowa can take minutes, create agenda and manage trustee workflows intelligently. This should in time lead to lower scheme costs but according to Mike Smedley , this isn’t happening yet with Trustee costs eclipsing those of other advisers as they take an increasing role in scheme management.

It is worrying that while all other aspects of scheme management are coming under the value for money lens, trustees seem to have no-one to scrutinise their costs. To whom are they accountable?

These questions were very much in play at today’s meeting of the Pension PlayPen.