Punter Southall Governance Services' Wayne Phelan: What trustees think of the CMA review

Professional Pensions has interviewed some of the industry's leading independent trustees - asking them for their views on the Competition and Markets Authority's (CMA's) review and the remedies it has set out.

In the third part of this Q&A series, PP speaks to Punter Southall Governance Services' Wayne Phelan.

PP: Do you think that the CMA investigation was necessary?

Phelan: Absolutely. A market was evolving where there was potential mischief if fiduciary management providers presented things to make it seem like the problems were being taken from you, but in doing so, some potential risks may have moved round, and some potential additional costs may have been introduced that may not have been apparent originally.

PP: Moving to costs and performance, what are some of the issues there?

Phelan: The fees element is typically a percentage of assets under management, split between the oversight for the fiduciary manager and then the underlying investment funds. That's fine. But clearly you want to compare an apple with an apple in that circumstance. Unfortunately, when people present things, they don't always present them in a like-for-like way. Therefore, you need to be clear on what you're expecting in return. So if you're saying that you want it to be half passively managed and in a certain asset class, then that's what you need to put down, otherwise you'll end up with what's easier or best to represent from their side. The performance bit is a much harder one to really get your teeth into.

PP: Is there an increased potential for conflicts of interest among consultant-led fiduciary managers?

Phelan: I think it's easier to accuse the consultants of being conflicted. That's not to say that they are, necessarily. The key thing is whether you're ending up paying more for the same service. That's really part of the drive of the CMA review that often people weren't realising that they were paying a lot more for often what were the same ideas and thoughts being generated out of the same research team. 

PP: What difference do you think the tender proposals could make to schemes?

Phelan: Most trustees that I sit alongside would, internally within their organisations, have to get approvals or seek competitive tenders for anything at that level, so why should a pension scheme be any different?

PP: If you could make one change to the proposals, what would it have been? 

Phelan: They are proportionate for now. As the world moves on, I think we need to see schemes being able to retest the value that they're getting from advisers. If you go in at an early stage in your investment journey, you're more likely to be in growth assets that are more expensive, more complicated, and more dynamic. But as you reach a different level of maturity and funding level, you get to a point where those assets are cheaper and require fewer moving parts. If you're paying the same price at the beginning and the end, at the end years, you're overpaying. 

I would also like to see some guidance for smaller schemes, because they're the ones that probably won't have the budget or understanding. So again, a bit more support proactive support can help.

PP: How do fiduciary management providers charge?

Phelan: There will be some pricing that reflects the underlying investment that you're in. But the fiduciary manager oversight cost tends to either stay the same or there are some, a limited number of providers, that inflation-protect that. So they increase it each year, which seems slightly counter-intuitive given that you would have thought that the assets would have gone up with inflation and therefore, question mark, are they getting a double windfall on their pricing? 

PP: Do you have anything you'd like to add on the proposals?

Phelan: I just urge everyone if they can to think about the trustees' and the pension scheme members' interests in this and not make it more confusing than it otherwise would be.

This interview was conducted as part of a major Professional Pensions research project on compulsory fiduciary management retendering, conducted in partnership with Goldman Sachs Asset Management. If you'd like to receive a copy of this report, please click here to register.