Lucas Vermeulen discusses the importance of understanding the basic needs and requirements of a pension fund before seeking unsuitable advice.
Every salesperson worth their salt will be able to tell you in confident and charming terms that their product is ideal for you. Visit a range of car dealerships with nothing more than a basic idea of what you want and you will inevitably come away at the end of the day thinking “they can’t all be perfect for me can they?”
Every estate agent gives you the best chance of selling your house, every TV package perfectly suits your viewing habits and every bank gives you the best way of managing your money.
This phenomenon is based on the modern trend of blindly trusting in graphs, tables and sales patter – that these people are the real experts, so they must know what is best for you.
No one provider is the same in terms of expertise, style, contacts, resources etc. – so deciding on the person to go with, based on the best brochures or the best carefully-selected headline figures, is a risky move when you then try and make it work against your initial needs.
More often than not the long-term result is a product that doesn’t suit you, not quite achieving the result you had hoped for and starting the search again.
A similar situation seems to be creeping into the pensions industry, specifically in scheme tenders for fiduciary management advice. There are many different types of approach for fiduciary management in the UK and a variety of providers specialising in their own style and focus.
It is therefore difficult to approach the appointment of a fiduciary manager without first undertaking the necessary strategic work to find out what kind of approach the scheme is after to match their risk appetite, funding level, sponsor strength, liability movements, ESG values and many other factors.
The key of course is to spend some time considering what you need before you actually hit the high street. Take a look at your specific requirements, quirks, budget, risks, style and the ultimate desired result and then speak only to those who can provide a solution for these highly-personalised criteria.
Most fiduciary managers, in their efforts to win new business, will be able to provide a compelling argument as to why they should be chosen for any scenario.
The danger for schemes is bypassing the initial strategy stage and selecting the provider who has the best pitch and record on paper, only to then sit down with them after appointment and say “Ok, so how do we do this?” and find that they can’t create a strategy that suits the nuances of the scheme.
Trustees aren’t expected to be experts and know the ins and outs of every type of risk management strategy in advance. But they should always be able to identify the needs of the scheme and the attitude towards different types of investment, risk and ESG/SRI, as well as the strength of the funding position.
This may take a little time, but it will ultimately save a great deal more time and cost in interviewing inappropriate managers or making a misguided selection and trying to make something work that doesn’t fit.
Schemes need to remember that they have the power and they need to be prepared to make demands of potential advisors, as well as questioning the underlying reasoning for their advice.
If the advisor can’t agree to follow the exact path laid out and instead try to show you their ‘better way’ then they perhaps aren’t the one for you, no matter how good their graphs look.
Lucas Vermeulen, UK Managing Director, Ortec Finance.