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Aon says trustees’ focus is on investment strategy over cost and fees
Aon and Leeds University Business School publish the second results of research into trustee decision-making

LONDON (9 March 2017) – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has published the second report highlighting the results of the research from its partnership with Leeds University Business School (LUBS), looking into the factors affecting decision-making by pension scheme trustees.

The second paper on the research findings, ‘Cost, Fees, and Trustee Decision-making’, examines the importance of costs and fees in trustee investment decision-making, and aims to understand the issues faced by trustees concerning the explicit and implicit costs and fees associated with fund management.

The wide-ranging research, led by Dr. Iain Clacher, Associate Professor in Accounting and Finance at Leeds University Business School, is based on 197 mainly defined benefit (DB) trustees and scheme managers in the UK, representing schemes ranging from those with less than £15m under management, up to those with more than £5bn, with 60% having assets under management of between £100m and £2.5bn.

The research reveals that trustees focus first on investment strategy and asset allocation when considering pension fund outcomes, with costs and fees coming as a second consideration. However, the qualitative interviews with respondents showed that trustees do place importance on value for money and on knowing what they are paying for. This includes how any value generated by extra fees is split between the pension fund and the fund manager.

The research also showed that:
•    Half of trustees choose active over passive management;
•    Trustees have a longer-term focus;
•    The influence of investment consultant recommendation was not as strong as might be expected;
•    84% of respondents understand explicit fees, such as basic net of fees calculation when evaluating a fund;
•    Trustees are much less familiar with implicit fees, such as market impact (47%) and securities lending (57%) costs;
•    Smaller scheme trustees are more likely to need help with understanding explicit and especially implicit costs.

John Belgrove, senior partner at Aon Hewitt, said:
"We believe that understanding trustee decision-making is essential in improving non-regulatory scrutiny of the asset management sector. We are, therefore, delighted to continue supporting this new research from LUBS into behavioural finance and the trustee context.

“This latest paper shows that trustees are rightly thinking about 1) strategy, 2) value for money, and 3) fees analysis. These findings show that the typical trustee is able to consider net of fees calculations correctly - and even when they are distracted by other information.”

Dr. Iain Clacher, Associate Professor at LUBS, said:
“Fund management fees and costs are often judged as opaque and complex, but a full disclosure of implicit costs and fees may result in information overload and prevent effective decision-making. Similarly, there may be a fixation on costs over value and it is the combination of both that is crucial to effective investment in pension fund management.”

John Belgrove continued:
“The FCA’s scrutiny of asset managers’ fees is a positive step.  We believe that the information gained from our research partnerships is leading to practical outcomes which will help trustees to look more closely at fees in the future, and without their losing sight of the need to focus on strategy first."

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For further information please contact:

Colin Mayes                                          Marina Jane-Sanchez
Aon Hewitt                                            CNC
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Notes to Editors

About Aon
Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 72,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit:

About the research

This paper is the second in the series analysing trustees of UK defined benefit pension schemes and examines the extent to which trustees understand costs and fees in fund management. The results of the first paper, Mapping the Trustee Landscape, found that trustees were highly educated, and had a range of professional qualifications. In addition, a majority of trustees exhibited a high degree of financial literacy when faced with questions on core concepts in investment and finance, such as time value of money, compounding, and inflation. However, the results of the first paper also showed that trustee boards lacked both age and gender diversity, which may not be optimal in making decisions. Moreover, homogeneity on trustee boards is an environment where ‘groupthink’ may be present, and so an awareness of this may help to mitigate the risk of groupthink dominating decision-making.

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