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CMA’s final order

02 September 2019
And while everyone’s focus has been around the amount of activity that’s likely to take place in the fiduciary management space as a result of the CMA’s final order, Kempen’s Nicholas Clapp believes there are other less obvious implications for pension trustees that have been overlooked in the rush to absorb the full impact of the order. 

The CMA’s final order are well documented and will come into force on 10 December 2019.  
The key points are shown below:


The headlines are focused on the introduction of compulsory competitive tendering for new appointments of fiduciary managers and an obligation to review existing arrangements within specific time limits.

Trustees will now have to introduce a competitive tendering process involving at least three potential fiduciary managers. 

In our view these changes are long overdue, and since we have been operating along these lines for many years it’s something here at Kempen we’re comfortable with.

However, there is one important point of note in relation to the market review process which is now affecting more than just the fiduciary managed community. The definition of fiduciary management has been widened in the final order and may now encompass pension schemes that believe that they are in a traditional advisory / asset management model, but have a proportion of their assets in a more directed-advisory model.

ACTION: Check with your current adviser if this impacts you before 10 Dec 2019.

An inflection point
What’s more interesting is the fact that trustees across the entire investment and fiduciary landscape will have more information available to them. Through setting investment consultants objectives and having performance and cost transparency data for fiduciary management, Trustees and Sponsors will have much needed accountability. This, in turn, will help them better understand the value of the organisations they work with and in my view, this has a more far-reaching impact than the market review process itself.

ACTION: Consider your circumstances and your current governance model. For additional background please see our research report on governance.

The overarching message to pension fund trustees is that your role as a trustee board is changing. The CMA found that trustee engagement was low so TPR are asking trustees to consider how they engage with their chosen advisers by improving their governance model. Specifically, TPR are asking trustees to look at previous governance models and ask if they are still appropriate given the numerous changes we have seen in the industry over the last few years. They want to see evidence that pension schemes considered their investment beliefs, their circumstances and achievable objectives while reviewing, or before appointing advisers. Cost transparency will be a focus but cost itself should not be considered in isolation. Where the scheme does not have the expertise or resource to perform some of these functions, seeking advice whether through an investment consultant or a fiduciary manager would be considered to potentially enhance outcomes. 

Right now the focus is all on the market review process. 
But these new rules in terms of choosing an appropriate governance model and how trustees engage with their advisers will fundamentally drive behaviours. And over the next three to four years we’re not only going to be seeing a number of market reviews because of the way trustees entered into fiduciary management in the first place, but we’re going to be seeing people taking decisions on much clearer analysis and information than they’ve ever had before. 
And that can only be a good thing. 

In our next update
Vicky Casebourne will provide an analysis of the guidance recently released by the Regulator on the CMA’s Orders.


The author

Nicholas Clapp

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