So how can trustees, especially lay and new trustees, scrutinise and challenge the advice they get effectively, without needing to become pensions legal, actuarial, investment and covenant experts?
It may sound an impossible task. But if you think about it, in our daily lives we weigh up and assess advice in areas in which we have no expertise all the time. Have you spoken to a doctor, dentist, mechanic, financial adviser, hairdresser, physio or personal trainer lately?
Scrutinising and challenging pensions advice as a trustee isn’t that different. But the fact that trustees are making big and often irreversible decisions that directly impact other people can naturally make the prospect of scrutinising pensions advice particularly daunting.
However, even if it might be tempting to follow an adviser’s recommendation blindly, as trustees you are ultimately accountable for the decisions that you make. Also there will be many situations where advisers set out a range of choices rather than making a specific recommendation so just following advice isn't even an option.
So here is an expert's secret guide to scrutinising the experts.
1. Focus on your objectives
Remember why you are supposed to scrutinise advice in the first place. (And no, it’s not just to give us advisers a hard time or make us earn our keep, however fun that might be!) You aren’t trying to become an expert on the subject. Your objective is to make sure that:
- you’ve “kicked the tyres” and the advice seems thorough, robust and well considered,
- the advice feels appropriate for your scheme, and
- you have a sufficient understanding of the advice to be able to use it properly to make informed decisions.
2. Get us to explain it in a different way
It sounds obvious, but if you aren’t confident you understand advice then ask your adviser to explain it in a different way. I’ve heard trustees ask for the “Cliffs Notes” version, or for advisers to explain it in no more than three sentences or as they would to a 10-year old. You could also ask them to try to come up with a simple analogy or give a worked example or possibly a visual representation.
In other words, it’s your job to make sure you understand the advice and to tell us if you haven't. It's our job to explain it in a way that means you do.
3. Ask questions
Ask us questions about our process and our conclusions. The best questions to ask will naturally depend on what the advice is about and how you need to use it. But there some fairly standard questions you can keep up your sleeve that work in lots of situations. Such as:
- What other options did you discount and why?
- What’s the biggest risk/benefit? (i.e. what tipped the balance? What would it take to change your advice?)
- Is it a “no brainer” or a “tried and tested path"?
- What would X (e.g. members, the company or TPR) say?
- What’s the best case/worst case scenario if we go ahead?
- What do other schemes do? (i.e. would we be "in the pack" or an "outlier"?)
In other words, part of the job is to appoint the right adviser in the first place and help them get to know you and your scheme so that they can deliver advice which fits your scheme in a way which works for you. Having the right adviser should also mean you feel comfortable speaking up when you need us to explain things and to ask questions.
The rest is mostly making the advisers do the work challenging and scrutinising our own advice. Lawyers love arguing both sides and playing Devil’s Advocate, and I don’t think we are alone.
So, start asking the questions. Just don’t tell your advisers I was the one who put you up to it!
Naomi Brown, Senior counsel, Sackers
