Fiduciary v advisory laid bare


Fiduciary management offers pension scheme trustees the option of appointing a firm that not only provides investment advice, as with the traditional investment consultant model, but is also willing to accept delegated authority for certain investment decisions. The balance between advice and delegation is one of many ways in which fiduciary managers differentiate themselves.


Before considering fiduciary management, it is important that trustees carefully review their current investment governance arrangements, if necessary by way of an independent assessment, to identify what could be done within an advisory framework to address any possible inefficiencies. With this template governance structure and an understanding of any additional advisory costs, trustees will have an appropriate benchmark against which to assess the merits of fiduciary management.


One issue is how investment decisions are made and implemented effectively by the trustees under an advisory model. Investment can be an inherently unpredictable business and so it is important to ensure that any uncertainty is not compounded by sub-optimal governance structures that might lead to unnecessary performance leakage.

For example, if sound investment consulting advice is not properly considered or implemented by trustees over time, this can result in blurred accountability for outcomes that may reflect luck more than well-managed judgment. Fiduciary management should reduce this risk, depending, of course, upon the quality of the resource. Furthermore, some investment decisions may need to be executed promptly, whether they relate to portfolio transitions or making timely investment strategy changes. A fiduciary manager with a more streamlined governance structure may be better placed to act quickly and decisively.

In addition, by delegating some of the investment decisions, as well as certain operational and governance issues, such as monitoring the investment management and custody functions, a fiduciary appointment can free up trustees’ limited time to focus on other important matters. However, trustees may worry about losing control under a fiduciary model and becoming distanced from investment solutions that might appear particularly complex or over-engineered with unknown risks and costs.

Conflicts of interest are typically flagged as an issue for fiduciary management. This needs to be assessed carefully, not least because the nature of conflicts and how to manage them effectively varies from one fiduciary to the next. It is also important to remember that an advisory model may not be conflict free either.

We believe now is a good time for trustees to undertake a governance review of their investment decision-making processes to ensure they remain fit for purpose

Irrespective of whether a fiduciary or advisory model is adopted, it is important to ensure the relationship is completely transparent and based upon a fee structure which provides for a clear alignment of interest, such that trustees can be confident they are always receiving best advice, regardless of the size of their pension fund.

It should also be noted that while fees may seem higher under a fiduciary model, they may include services not covered within a typical advisory relationship.

A recent Financial Conduct Authority review highlighted the difficulty of assessing the quality of advice provided by consultants and fiduciary managers. While accepting its complexity, we disagree with the views expressed by some that it is invariably more difficult to assess fiduciary managers than consultants. Given the delegated nature of fiduciary management, there are clearer lines of accountability, which we believe should make assessing a fiduciary manager easier, albeit not necessarily easy.

The challenge for our industry is to develop transparent reporting that not only explains investment performance and portfolio activity, but also clearly evidences any skill in the actions taken by consultants and fiduciary managers.


The development of fiduciary management should be welcomed by trustees as it provides them with an additional option. Although it will not be appropriate for everyone, with the demands placed on trustees and the increasing complexity of pension scheme investment, we believe now is a good time for trustees to undertake a governance review of their investment decision-making processes to ensure they remain fit for purpose.

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The information and opinions contained in this article are intended for general discussion only and do not constitute a personal recommendation. Past performance is no guide to future performance and you should seek independent advice before entering into any financial transaction. For professional investors only. Stamford Associates Limited is authorised and regulated by the Financial Conduct Authority. © Stamford Associates Limited 2017. All rights reserved