With the initial compulsory fiduciary manager retender exercises now complete, we look back at the cases we’ve advised on over 2021 to see what the common themes were.
Did many of these exercises result in a change of fiduciary manager?
The majority of such exercises resulted in the incumbent being retained. Perhaps this should not come as a surprise, given most of these exercises would not have taken place were it not for the CMA compelling trustees to re-tender. Sometimes this was the expected outcome from outset, whilst other tenders were more finely balanced with familiarity with the incumbent, combined with fee reductions winning the day.
Some of the fiduciary management fee reductions were quite significant with savings ranging from 0.03% p.a. to 0.22% p.a. of assets under management and an average fee saving of nearly 0.1% p.a. This just relates to the fiduciary management fee and does not consider underlying fund costs and other expenses. Sometimes there were savings in underlying fund costs too, although such savings should be treated with caution as often this was driven by a shift from actively managed to less expensive passively managed portfolios. We note that in many cases the incumbent was not the lowest cost proposal, going to the lowest cost provider would have saved a further 0.08% p.a. on average. Whilst cost is an important factor it is quite rightly not the only driver of decision making for clients.
This leads us to believe that:
- Pricing in the fiduciary manager market is now much more competitive than it was 5+ years ago.
- Schemes that do not need to undertake a compulsory tender would likely benefit from such an exercise given the average cost savings far outweigh the costs of the exercise.
- Trustees are generally satisfied with the service they are receiving from their fiduciary managers.
- The CMA Order is achieving its objective of making the fiduciary manager market more competitive.
Another interesting aspect of the tender exercises was the strategy discussions, with many tenders also acting as a catalyst for trustees to re-consider their investment strategy (often in light of an improved funding position). The tender exercises helped bring a range of strategy ideas and views from all the fiduciary managers involved, giving trustees plenty of food for thought.
Overall, our view is that retender exercises have delivered value to clients.
We will be interested to see how the market continues to develop in 2022. There are still some schemes that are yet to complete their compulsory tenders and we are continuing to see more schemes moving into fiduciary management for the first time. Our prediction is that prices will continue to get more competitive, but the incumbency bias will remain – let’s see!