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Musings

Chris Fagan shares his thoughts on the CMA's provisional decision

July 2018

The CMA produced its long awaited ‘Provisional Decision report’ this week (330 pages plus a 168‑page appendix).

In short, its key finding was that, whilst the market is not overly concentrated and hence uncompetitive, there are a few things that could be changed to make it more competitive. Some of these relate to the behaviour of investment consultants and fiduciary managers; most of them relate to improving investment governance generally. The CMA notes that more engaged trustees get better results. Or to put it another way – better governance gets better results – not a surprise to Muse of course!

So, what does the CMA say should be done? Improve governance by:

  • compulsory tendering when appointing a fiduciary manager and compulsory retendering of some existing mandates
  • forcing combined investment consulting and fiduciary firms to make it clear when they are pushing their own products
  • introducing standards for performance reporting and more detailed fee breakdowns
  • ensuring that trustees set clear objectives for their investment consultants

To help trustees, the CMA suggests that The Regulator should provide guidance on tendering and the FCA’s remit should be extended to cover more services provided by consultants and fiduciary managers.

The CMA has stopped short of forcing a structural change on the industry (for example outlawing combined investment consultants and fiduciary managers).

We think that the proposals are proportionate to the issues identified and, if implemented well, the governance enhancements should help to improve outcomes. Implementation will be key of course. In particular: any new tendering process must be robust. It must be a proper review and not simply become a ‘box-ticking’ exercise. Where existing mandates are being re-tendered, anything other than a proper review is likely to result in an FM provider’s unwillingness to participate. New performance and fee information also needs to be understood and used in the right way in decision making. The investment consultants themselves have a role in ensuring that their trustee clients have clear objectives.

A lot of trustees have, understandably, put off reviewing their investment arrangements in anticipation of the CMA review. The remedies being proposed do not appear to be too demanding for the industry overall and we expect them to be adopted. Trustees who were waiting for the outcome should therefore wait no longer; good governance dictates that action should take place now.

Are administration SLAs redundant?

April 2018

By SLAs, I mean time-based measures of a service providers performance. Of course, there will always be service level agreements in place, but it is telling that SLAs has become shorthand for the all-pervasive 5-day turnaround.

In administration, we have seen this changing. Qualitative measures are now included in more and more contracts and quantitative measures are now broader than just the time it takes to get a letter out the door. It now has to be right first time as well (although why that needs to be explicitly stated is still beyond us – does anyone ever want anything else?). We have also started seeing much more traction for end-to-end SLAs, which, admittedly is still a timescale, but is more representative of the member’s experience of the service. And there are some signs of more proactive management of member expectations at each stage of the process as cases are passed to actuaries and third parties for input.

However, I have been wondering lately, whether time-based SLAs are becoming entirely redundant. In a world where I can logon to my banking app with my fingerprint and send a payment anywhere in seconds, is it really right to be measuring a retirement quote in days? In an increasingly automated and self-serve world, does it still make any sense to measure performance in this way?

Of course, it is not always easy to throw away the comfort blanket. The Trustee still needs a quick way of measuring the performance, which tells them whether the administration is up to scratch or not. The more complex the measures become, the more complex the assessment of performance becomes. However, I thought I would throw a few different ideas out there for you to muse over:

  • Targeted % of transactions/ calculation to be automated without need for manual intervention. Whilst this may exist at the outset of a contract, this should be maintained across the life of the contract and as the scheme and legislation changes/ evolves.
  • A set % of transactions to be completed via self-service. It may take time to get there, but a concerted effort to drive interactions this way should bear fruit. This will ensure improvements in data quality, automation and engagement with the membership.
  • Progress of project work, e.g. bulk exercises, benefit statement issue. Self-reported RAG analysis of these projects, which you, as the client, can comment on where you feel it does not meet the reality.
  • Reporting on trends, e.g. in member queries (particularly those that fall into the bucket of the never really explained ‘general cases’), complaints, etc. This would be used to develop a programme of continuous improvement.
  • Regular review on value for money – is your administrator providing good value to your members?
  • Data management – some more creative thinking about maintaining quality data, i.e. quality of data received through interfaces, queries raised/ outstanding etc.

Clearly, these are not fully formulated measures that you can cut and paste into your contracts, but hopefully illustrate the point that there is more to administration than being able to confirm that a response was provided within five days! And we haven’t even mentioned risk…

Viewpoints

Mind the DC governance gap

12 October 2018

A notable trend in th epensions landscape right now is the number of single employer trust arrangements that are setting up dedicated defined contribution (DC) committees. 

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Supporting your pensions manager

10 October 2018

The increasingly variable nature of pensions management requirements is causing many trustees to re-think their resourcing model.  In this article, we explore some of the drivers underlying this shift, as well as a variety of practical measures to address it. 

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Taking a fresh look at your Investment Consultant

24 July 2018

The Investment Consultant is a key advisory relationship underpinning the achievement of a scheme’s strategy, and one where trust and confidence are fundamental. It is essential that the effectiveness of this relationship is reviewed at appropriate intervals.

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Guides & Tools

Professional Trustee Standards: Muse's View

We responded to the consultation on Professional Trustee standards. It's not an easy challenge to grapple with and we applaud the efforts of the Working Group so far. Read our full response here.

  Read more

21st Century Trustee - Roles and Responsibilities: Muse Views

The Pensions Regulator has published the first in their series of guidance on 21st Century Trusteeship. We have some thoughts on this, which you can read here.

  Read more

Case Studies

Conflicts of interest policy


TPR says you should have one. In fact, having one can be an education in itself and helps trustees to decide what actions to take when conflicts of interest are identified.  A well-governed trustee board will treat their conflicts of interest policy as a living document to be reviewed from time to time to consider new situations as they arise.

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TPR says you should have one. In fact, having one can be an education in itself and helps trustees to decide what actions to take when conflicts of interest are identified.  A well-governed trustee board will treat their conflicts of interest policy as a living document to be reviewed from time to time to consider new situations as they arise.

Many trustee boards are alive to conflicts of interest.  They are reminded of them when relevant at each trustee meeting either at the beginning of their agenda or just before the relevant item is being discussed.  This appreciation of conflicts has usually come about through articulating and sharing identified conflicts of interest, through regular training sessions on the subject and through self-aware advisers that are at pains to set out potential conflicts of interest in any advice they may be giving.  A good chair will also have the courage to call potential conflicts of interest out so that all the issues can be aired in a fair and transparent manner.

Risk workshop


Muse facilitated a workshop for the Audit and Risk Committee of this multi‑billion‑pound scheme as part of the introduction of a new risk framework. We walked the committee through a specific administration example to help them understand what their risks were, what their risk appetite might be, the controls they should have in place, how they would be implemented and by whom and how those controls could be monitored (administrator, trustee executive or internal audit) and reported on to the committee.

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Muse facilitated a workshop for the Audit and Risk Committee of this multi‑billion‑pound scheme as part of the introduction of a new risk framework. We walked the committee through a specific administration example to help them understand what their risks were, what their risk appetite might be, the controls they should have in place, how they would be implemented and by whom and how those controls could be monitored (administrator, trustee executive or internal audit) and reported on to the committee.

This scheme had an objective to deliver a quality, member-focussed service, that was accurate, consistent, efficient and responsive. However, its current administration service was only just improving after a period of under-resourcing, data and calculation errors, breaches and member complaints. A liability management exercise was muted which the trustees knew would impose greater volumes of work on an already fragile team.

Understanding their risk appetite was essential when the trustees subsequently came to making decisions on which projects to undertake. Was the risk of not committing to the liability management exercise on the scheme’s long-term funding position greater than the risk of a poor administration service in the short term? With this knowledge, the trustees were actively able to manage the right risks in the short-term and tweak their strategy to prioritise activities over the medium to long term.

News

Pensions Age - July Administration Roundtable

31 July 2018

Muse's Avgi Gregory joins a panel of experts to reflect on what's been troubling administrators in today's challenging pensions world.

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Chris Fagan joins Muse as an Associate Director

12 February 2018

We are delighted to welcome Chris Fagan to Muse Advisory. Chris is an experienced investment specialist and a strong voice on good investment governance, which strengthens our offering to clients and ability to support Trustees in this area.

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Muse Advisory, the independent pensions management consultancy, is delighted to announce that Chris Fagan has joined the team today as an Associate Director.

Avgi Gregory, CEO, said: “We are delighted that Chris has joined Muse. He shares our values and our focus on independence and integrity. He is a highly experienced investment specialist placing strong emphasis on good investment governance and bringing with him extensive relevant experience to strengthen our team”.

Chris Fagan commented: “I am very excited to have an opportunity to work with Muse. In particular, I am looking forward to working with an independent governance specialist where I can use my investment experience to help schemes enhance their governance and ultimately improve investment outcomes”.

Chris was an Investment Director in Willis Towers Watson’s Fiduciary Management Team having previously been a senior investment consultant. He was also a company appointed trustee and investment committee member of the Towers Watson Pension Scheme.

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