Time is running out to retender fiduciary mandates

It’s been over 18 months since the Competition and Markets Authority (CMA) published its order covering the investment consultancy and fiduciary management market.

The order was designed to spur competition and make sure that trustees were getting the best service and value for money from their providers, with a key requirement being compulsory competitive tendering for fiduciary management mandates. As a result, many trustees with existing fiduciary mandates, which hadn’t originally been tendered competitively, have to complete a compliant competitive tender process by 10 June 2021 at the latest.

The combination of what at first seemed like a distant deadline and the tsunami of challenges that trustees have had to deal with over the last 18 months (responsible investment, Brexit, COVID-19, the end of LIBOR, RPI reform, the list goes on) has meant that, for some, re-tendering their fiduciary mandates slipped down the priority list.

What do we expect from here?

Well, we expect things to be busy. Plenty of CMA-led tendering activity is still to come and many schemes risk scrambling to meet the 10 June 2021 deadline. In addition, guidance from The Pensions Regulator now encourages trustees to seek independent help in monitoring their arrangements, so those with mandates are starting to look more carefully at them. For some trustees without fiduciary management, it has become a hot topic too, particularly among those who have seen market opportunities missed over the last 12 months.  A recent survey of trustees which we conducted found that 54% of trustees either had tested or were planning to test whether fiduciary management was right for their scheme.

How are fiduciary managers responding?

Fiduciary managers are seeing lots of retender requests coming in and with limited capacity they are offering improved terms to retain existing clients and becoming more picky in choosing which other tenders to respond to. If a third-party manager sees a request to participate in a retender as simply a benchmarking exercise with little realistic chance of winning the mandate, the manager is more likely to decline to respond.

What are we seeing?

If we look at CMA-led retenders, every exercise has brought benefits to the trustees. These range from reductions in the fiduciary manager’s fees or changes in the structure of the mandate to reduce underlying costs (which are often many multiples of the fiduciary manager’s fees) all the way to changes in the team, changes to discretions, or better reporting. The biggest benefits are flowing to those trustees who are best prepared, those who understand their manager’s strengths and weaknesses and what works and what doesn’t work, so the incumbent manager feels it is being challenged.

What should you be doing? 

For those trustees who have yet to act, there’s still time to complete a successful exercise. Don’t panic but you really need to start now so you can make the best of the opportunity and capture the benefits.

Finally, a special mention for those trustees who don’t need to retender. This may not make us popular with fiduciary managers, but the CMA review has helped drive down fiduciary management fees and some managers have been volunteering fee reductions to pre-empt the risk of a review.  Even if you’re totally happy with your fiduciary arrangements, if you haven’t challenged your manager recently then you may be missing out. As always our experience is that a well-prepared exercise delivers the best outcome.

If you would like to discuss anything further, please do get in touch.