This week Pension Funds Insider caught up with the spiritual father of fiduciary management Anton van Nunen about the rise of fiduciary management and the changes the concept has brought to the consulting market.
Consultants at the moment, both fiduciary and traditional (such as Towers Watson and Mercer), fulfil an increasingly bigger role in the pensions industry. With rising amounts of funds going around - the Dutch pensions industry is worth more than €800bn – the necessity of increased consulting services is completely understandable, especially since, as Van Nunen puts it, "most of the funds are being managed by a group of willing amateurs who don't get paid a lot of money but have to work many tough hours in a field that isn't their main one".
The regulator has increasingly higher demands of scheme governance, which, says Van Nunen, is understandable given the money involved and the fact that members need to be protected. What it does mean though, is that there is a need for more expertise and knowledge of good governance at pension schemes.
The Dutchman developed the idea of fiduciary management some ten years ago and his framework for 'a new way of consulting' still applies today. According to Van Nunen, who now works as director of strategic pensions management at Syntrus Achmea, there are six tasks that a fiduciary manager has to fulfil in order to support a trustee board: give advice, construct the investment portfolio, select the asset managers, monitor the portfolio, report, and task six: educate. "Because the fund has to understand what a manager is doing".
The educational aspect especially makes fiduciary management different from the traditional consultancy model, explains Van Nunen. The fiduciary actually "sits at the desk of the board", he says.
The former private consultant and director at Rabobank International explains that the problem with consultants is that they give you their comments and leave, until the next time you call upon their services. A fiduciary manager is actually working on a scheme's portfolio on a regular and consistent basis.
And it is not just the need for more governance and expertise because of regulatory demands that fuel the fiduciary market. Funds themselves actually understand that they have to deal with a much more complex and volatile market. "There are numerous relatively new products out there and the risks are becoming so high that you can not just rely upon your own knowledge anymore," says Van Nunen.
"An increasing amount of schemes go to fiduciary managers and I think that is a wonderful development, because the concept has been proven to work."
So with this in mind why do traditional consultants lose part of their market share? Because, says Van Nunen, they give their opinion on certain aspects of the pension problems, sometimes construct parts of the overall portfolio and select external managers, but by nature do not hang around long enough to deal with the real underlying issues facing pension schemes nowadays and miss this overall approach.
"The problems are huge and the traditional consultant's nature is too fleeting. You see consultants losing market share. Pension funds are not looking for products, they want solutions. Consultants, only delivering parts of the package, seem to have problems to match solution-driven demand with their total package. Their approach to deliver parts is not in line with schemes which want being looked after by a party truly serving their best interests in an integrated manner. If all goes wrong it is the fiduciary's neck that is on the line."
In the Netherlands, he says, consultants have started to react to this already and move more towards the fiduciary concept – although they would not name it as such, perhaps because this would mean a loss of face: "But you do see more and more offerings for implemented consulting and overall balance sheet management, which are effectively the same as fiduciary management."
When the duties a scheme board is given get too onerous and their fiduciary duty actually requires them to more or less to get more advice and more expertise on board, then a fiduciary manager can offer the right solution, he claims.
"By getting a manager that educates as well as advises, the trustee ensures he fulfils his duty – though of course, the final responsibility lies with the board. "However attractive the name 'fiduciary management' might sound – and I regret the name – the fiduciary duties lie solely with the board."