LONDON (6 September 2016) – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has published its Fiduciary Management Survey 2016. Now in its seventh edition, the survey remains the largest and longest-running of the UK fiduciary management market, this year attracting responses from representatives of 250 UK defined benefit (DB) pension schemes with £270 billion of assets and equating to around 20% of UK DB pension schemes.
Among its key findings, the Aon survey highlights the degree of rigour and diligence which schemes are now demanding as they assess, appoint and monitor fiduciary managers – as well as the high levels of satisfaction among users of fiduciary services (98%).
This year’s edition shows that DB pension schemes are using a combination of measures to ensure they appoint the right provider, with 67% using a beauty parade or a site visit when assessing capabilities. Due diligence has also increased in popularity, with 65% of the respondents citing this method. Formal RFPs are used by 55% of the respondents.
Sion Cole, partner and head of European Distribution at Aon Hewitt, said:
“The results of the survey are in line with what we are observing and experiencing in the market. Once trustees have taken the strategic decision to delegate all, or part, of their scheme’s investment portfolio to a fiduciary manager, our experience is that they are putting in place rigorous structures that enable smart decision-making.
“We are seeing the same thorough approach when trustees of schemes of all sizes select their fiduciary provider. To put this in context, 80% of our new fiduciary mandates over the past 24 months have been won from a full competitive pitch process.”
The responses from UK DB schemes also reveal the qualities considered by users to be most vital for a productive working arrangement with their provider. The top three most valued qualities by users are: proven track record (47%); investment experience (46%); and clear investment process (42%). Fees remain relatively low down the list with only 24% of trustees citing them as key indicator.
Performance measurement against scheme’s own objectives
The Aon 2016 survey demonstrates once again an extremely high degree of satisfaction, with 98% of those using fiduciary managers rating their experience as excellent, good or satisfactory. With performance the number one quality that schemes consider when selecting the fiduciary provider, the vast majority (87%) of those surveyed prefer to measure performance of their fiduciary provider relative to their scheme’s specific investment objectives, rather than a generic industry standard.
Sion Cole continued:
“No two pension schemes are the same. We therefore believe it is important when implementing a fiduciary solution, that trustees make sure that their provider creates a bespoke benchmark which accurately reflects their precise objectives and their unique liability profile. It is key that performance is shown clearly versus this benchmark and that trustees have a full breakdown of what is behind that performance.”
Increasing preference from unbundled fees
While fees figure relatively low in the considerations of schemes already using a fiduciary manager, they are subject to a high degree of scrutiny by pension scheme trustees. The Aon survey revealed a preference for a fully unbundled fee structure where all fees related to the fiduciary solution are charged separately, such as the provider and underlying manager fees. 54% of respondents said they prefer this unbundled approach.
Sion Cole said:
“Good value is clearly important to pension schemes, and we see that trustees want to be able to compare fees across multiple providers. In this respect, fully unbundled fees and pricing structures are a huge enabler for schemes to make informed decisions. Aon Hewitt has long supported this approach and I am pleased to see that trustees are increasingly pushing their providers for complete transparency in this matter.”
Other key highlights of the survey findings are:
• Take-up of fiduciary management has more than doubled since 2011, when 18% of respondents had appointed fiduciary providers, to 45% in 2016.
• Investment expertise and daily attention to risks and investments remain the top two advantages of fiduciary management.
• 78% of those with a fiduciary mandate believe scheme investment decisions are taken at the right speed.
• 73% of schemes prefer the use of externally-managed funds or a combination of in-house and external funds.
• Schemes with a fiduciary manager are more than three times as likely to invest in ten or more asset classes (7% vs 2% of those without). A third (33%) of those with fiduciary management have between seven and nine asset classes in their portfolio, compared to just a quarter (25%) without.
• 67% of schemes with fiduciary management have a flight plan in place.
For further information please contact:
Colin Mayes Marina Jane Sanchez
Aon Hewitt CNC
01372 733689 020 3219 8811
Notes to Editors
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