Since our last survey, fees have become even more of a hot topic, especially following the release of the FCA’s asset management market study, which also covered fiduciary management. Increased transparency of fees and costs is good news for the pensions industry, and our survey aims to add more light to help trustees and sponsors assess whether their fiduciary management arrangements provide value for money.
With more demand for fiduciary management services, there continues to be an evolution in the fiduciary managers’ offerings, which has a knock-on impact on total costs. Our survey goes beyond just looking at fiduciary management and investment management fees and also looks into expenses, which are often overlooked but are key to determining the total cost for the service in order to assess value for money.
As the level of services provided under a fiduciary management arrangement can differ from scheme to scheme, for comparative purposes for our survey, we gave the fiduciary managers a scenario for four hypothetical pension schemes, with specific return targets, and left all remaining decisions (including the level of hedging and the asset allocation) up to the fiduciary managers; this is the norm of fiduciary management mandates in the UK.
The information in this survey is based on responses received from 15 fiduciary managers who collectively manage the vast majority of assets in the UK fiduciary management industry.
Some highlights from the survey results are provided below.
For more information, and to download a full copy of the survey results, please visit www.ey.com/fiduciarymanagement.
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Key highlights
► Larger range of fiduciary management fees – the spread of fiduciary management fees continues to rise, reflecting an increasing ability of the industry to provide solutions in line with different clients’ needs.
► Range of investment management fees – the fee differentials for investment management fees are surprisingly wide, even for asset classes such as passively managed equities, which suggests there are different abilities of fiduciary managers to negotiate fee discounts with underlying investment managers.
► Relationship between fiduciary management fees and total costs – fiduciary management fees can range from between 11% to 70% of total costs, further validating the need to consider total costs when comparing fees and costs among providers, as a low fiduciary management fee in itself does not give any indication of total costs.
Using these survey results
As fiduciary management is a service and not a product, it is difficult to compare fees and costs across mandates. Our survey aims to represent a like-for-like comparison for a specific scenario for four hypothetical pension schemes. The numbers in the survey provide some indication of the costs of a fiduciary mandate. Fees do, however, depend on a range of different aspects including the level of active and passive management, and the sizes of allocations to alternative assets. It is important to consider any fees and costs in the context of what a fiduciary manager is really offering to be able to check for value for money for a scheme’s individual circumstances.
Iain Brown, Partner, Ernst & Young LLP
