The UK Fiduciary Management market continues to experience strong growth albeit with a lack of competition. However, for the first time, more than 100 schemes have reached three years’ fiduciary management experience. As such, more “triennial” reviews are expected which could subsequently drive competition, according to a report by professional services firm, KPMG.
The 2014 KPMG UK Fiduciary Management Market Survey, is a comprehensive annual study of the UK full Fiduciary Management (“FM”) market. FM is used to describe the delegation of investment decisions, previously taken by trustees, to an appointed fiduciary manager, or provider. The provider manages the delegated assets on behalf of the trustees. Trustees benefit from having a dedicated provider focused on delivering their scheme’s investment needs.
The full delegation market grew to £38bn in assets under management, representing over 30% year-on-year growth since 2007. This has primarily been driven by small schemes, with 77% of new mandates in 2014 falling in the under £100m category.
Fully delegated mandates are now used by 5% of UK defined benefit schemes, representing 3.4% of the UK’s defined benefit assets.
The partial delegation market also saw a 52% boost in partial delegation mandates in the past year. This suggests that trustees are becoming increasingly comfortable delegating larger proportions of scheme assets to providers.
Anthony Webb, head of fiduciary management research, investment advisory at KPMG said: “These results show that the FM market continues to grow. Over 2014 this was driven primarily by new market entrants which highlights that the market is not yet fully mature.
“One area in which the industry continues to lag is performance measurement. While it is relatively easy to establish the performance of an asset manager, the data to compare the performance between fiduciary managers – or to assess the impact of Fiduciary Management as a whole – is more difficult to access.”
The report suggests that there is currently little competition or independent advice in the tendering process in the FM market, with 75% of new mandates won without a tender process, or without additional fiduciary manager providing a fee quote.
The report revealed that significant numbers of schemes managed by fiduciary managers have or will soon have their three year anniversaries. Consequently many are likely to undertake performance reviews in line with their triennial valuations. Perhaps as a result of this, 2014 saw the first schemes switching providers. While this figure is currently 3%, the providers questioned in the survey predict that by 2017 this will rise significantly.
Anthony Webb added: “Most fiduciary managers have now built up a performance track record of several years. Individual schemes can request performance data from their provider and determine whether or not they are achieving their objectives.
“However, there is no consensus on how to combine the performance across all of a provider’s mandates, and therefore enable a comparison of the added value of one fiduciary manager to another. Therefore, not all providers are willing to share their full performance history.
“Three years is a natural review point for providers to review the performance of their FM providers and reconsider their relationship in line with the scheme’s triennial valuation. We anticipate that as more schemes begin to review their FM provider’s performance, we will see the necessary kick-start to creating a truly competitive market.”
Jenny Banks, executive consultant, investment advisory at KPMG concluded: “Appointing a fiduciary manager is different to appointing a traditional investment advisor. You receive a different service that needs a different range of skills. Therefore comparing a number of managers is crucial to make sure that you are establishing the best long-term relationship, and on the best terms. As these mandates are typically more difficult to unwind than a normal asset manager arrangement, it is worth getting it right.
“Working with an independent advisor is a good way of helping schemes get the best understanding of the current market and the difference between providers. Trustees must ensure their provider is sticking to their guidelines and monitor whether their performance is in line with the rest of the FM market.”
The full report can be downloaded here.
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Notes to editors:
UPDATED: 12th November 2014 - Note that due to updated information, the total number of mandates not using a competitive tender was revised to 75%, where previously it was reported at 81%.
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KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.