Setting strategic objectives for your investment strategy
Investment Pensions

Have you set strategic objectives for your investment advisers yet?

For the average Trustee Board, arguably the most challenging aspect of running a defined benefit (DB) pension scheme is making investment decisions. Whilst other aspects of running a pension scheme are usually heavily codified in the scheme rules, Trustees usually have the freedom to invest in pretty much whatever they like. It is therefore hardly surprising that most Trustees find this a frightening proposition, and make use of an array of investment managers and advisers to help them take and implement investment decisions.

However, this murky web of third party support has caught the attention of the UK’s competition regulator, and new rules released on 10 June will now require Trustees to set strategic objectives for their investment advisers. Trustees will now need to think very carefully about the investment advice that they receive – what is its scope, how is that advice going to be prepared, how does it fit with the scheme’s investment principles, and how can the quality of that advice be assessed and monitored? These are all tricky strategic questions for Trustees, especially if trustees lack investment experience themselves.

Trustees need to take action now – the CMA has given trustees just six months to set these objectives; failure to do so would mean that taking investment advice could land Trustees in court for failing to comply with a CMA order.

As a provider of investment consultancy services, Broadstone know exactly how other investment advisers work – how they craft advice, how they approach strategic asset allocation issues, how they work with specific investment managers, and how they charge fees. With many investment advisers now acting as a salesforce for the advisers in-house fiduciary management service, Trustees need more clarity than ever before on the ‘nuts and bolts’ of working with an investment adviser.

Trustees with investment expertise may be able to review these relationships themselves, but in the absence of that expertise we can help by:
• Reviewing the nature of the engagement with the investment adviser;
• Reviewing recent advice received by the trustees, and how that advice fits with the trustees’ agreed investment principles;
• Setting the written strategic objectives for their investment advisers;
• Setting out how trustees can monitor delivery and performance against those objectives.

In a world of low expected investment returns, investment-related advisory and management fees can easily account for 25% of expected gross investment performance. It’s critical that trustees spent time and effort making sure that they are getting best value from this very significant expenditure. Ensuring that clear, measurable objectives are set for those involved in providing investment services is crucial if trustees are going to properly discharge their weighty responsibilities as the custodians of significant investments.

If we can be of assistance in any way, then please do not hesitate to let us know.