Just before this article is published I’ll be stepping down, after a 14 year stint, as MD of one of the largest professional trustee firms: Zedra Governance Limited, previously PTL. Whilst I remain part time as a Client Director it seems a good time to reflect on what’s happened with professional trusteeship over that time: has it been good, bad or indifferent?

Towards the end of the noughties the informal view was professional trustees collectively served about 15%-20% of the market, but most of this was concentrated in just a few firms. The current percentage isn’t public knowledge but the informal view is around 60%, although served by a much larger number of firms. The main drivers behind the increase were (a) a lack of lay trustees willing to serve (b) employers wanting to improve operational efficiency and (c) a regulator keen on the concept of independent governance. Of course, I think this a good thing.

There is more independence, a supply gap has been plugged, undoubtedly many schemes have benefited from improved and more timely governance and, importantly, there is more competition. But it’s not a one-way street of benefits. The number of lay trustees and particularly member nominated trustees, along with all the benefits they bring, has further dwindled and, perhaps, some of the human contact/love has been lost. Let’s not forget pension schemes are about people.

The problem with this sudden increase in the use of independent trustees is that, often, a  soft market can attract dubious actors, and this one is no different. There was no quality control. Any Tom, Daisy or Harriet could set up as a professional trustee unless they failed the basic trustee qualifications of, for example, having been disqualified as a company director or banned by the regulator. This was eventually addressed, albeit slowly and not definitively, when TPR encouraged a system of self-regulation.

For the last couple of years, it’s been possible to become an “Accredited” professional trustee by passing some tests and submitting to some due diligence from one of the two providers. This is undoubtedly a step in the right direction, but it’s not perfect. I have two criticisms, firstly, its voluntary so the buyer still has to beware and, secondly, the accreditation standards are too low. There isn’t, for example, a capital adequacy test - something any bank clerk or police officer has to prove.

The other problem with the way the market has evolved is diversity, or more accurately, lack thereof. Many of the trustee firms were set up by late career individuals coming out of big in-house schemes, consulting actuaries or lawyers. In other words, they were, mostly, male, not that young and their professional experience not fundamentally varied. This is gradually changing (one of our boasts is we have hired more females to trustee roles than males - not that we had a quota, but because they merited it. This - includes Kim Nash, my successor as MD) but perhaps not quickly enough. We need to find a way of accelerating our diversity and we need to aim for cognitive not just physical diversity.

A second disadvantage, for the firms themselves, of being set up by late careerers is their time horizon was short and they had no need or incentive to think long term. As the DB market consolidates, this will create a problem for them. Their business and revenues will shrink, meaning they’ll lose people, then clients, then more people and so on: a spiral of decline. There is a systemic risk of market concentration being stored up for the future.

So, good, bad or indifferent? Well, big steps have been taken, but, on balance and at best, a mixed score card.