Fiduciary Management for Finance Director’s (FD’s)

06 June 2018

In this short article we look at the reasons why FD’s should be excited about how fiduciary management (FM) could improve their lives.

Arguably, the most valuable asset to an FD is time and so anything which uses time more effectively for you and/or the management team has to be good for your business. Under the traditional approach to pension scheme investment there is a long trail of decision making, many of which require the scheme sponsors input. This is illustrated below, even for a simple asset manager change.

Fiduciary management for finance director's

The time taken to change strategy or managers can take several trustee meetings, which could result in actions not being timely, opportunities missed and frankly at best mediocre outcomes through not being on top of the situation.

A conservative estimate of the time which could be saved each year is 25 hours for every person involved in the management of the pension scheme, including trustees.

The biggest decision which needs to be made around investment is about strategy. This can and should cover the following areas:

  • Risk appetite
  • Growth needs
  • Volatility constraints
  • Maturity of pension scheme
  • Cash flow needs
  • Alignment to funding plan

Input from the scheme sponsor is vital as, of course, the health of the pension scheme has a direct impact on them and shocks, such as a sudden need for cash by the pension scheme, can have a material impact on the sponsor.

Strategy is also not just about the immediate requirements but needs to look to the future. Few FD’s are active members of a Defined Benefit (DB) Scheme. Indeed very few DB schemes are open to new members or are actively accruing benefits for existing members. Therefore as part of any strategy review one needs to build future de-risking with the aim, in most cases, of an efficient and effective extinguishing of the pension scheme and its liabilities over a relatively short time frame.

The rest, manager selection, rebalancing of assets, effecting triggers in line with the strategy are all important but of lesser magnitude than the strategy. So you need to ensure that management time and trustee time is used effectively, to address the major decisions and delegate the implementation and management of the strategy to those who are able and have the skill, expertise and day to day responsibility for undertaking these roles. This is where Fiduciary Management (FM) comes in and takes responsibility for implementing the strategy. The extent of the delegation is for the sponsor and trustee to decide. However, irrespective of the degree of delegation, time is always used more effectively and actions are not left “to be agreed at the next meeting”. Indeed actions deferred invariably result in missed opportunities, which almost always cost money.

De-risking should be part of any strategy and planning for the end game is now more important than ever. FD’s need to be on top of the development of the pension scheme. The very high level of transfer payments as part of Freedom and Choice may also be affecting the profile of the scheme. Disinvestment decisions can affect the shape of the remaining assets in terms of risk and volatity. Crucially we are now finding many schemes have fewer assets to generate the growth needed as part of the funding plan. Who is managing the assets to take account of this? Indeed were you aware that, whilst transfers are generally good for the pension scheme, there can be these less desirable implications?

As an FD, if you feel the management of your pension scheme is taking too much management time, or your scheme is not performing as intended, or surprises keep cropping up, you should take a long hard look at FM and see if it could offer you a better route, leaving you more time for your business.

For more information, speak to your usual JLT contact or either Darryn Lake, Chief Investment Officer (Darryn_lake@jltgroup.com) or Tony Pike, Head of Sales (tony_pike@jltgroup.com).

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