Twenty years ago I made a decision. It was a big decision but one that, with some modest hindsight, proved to be right and with longer hindsight, was my making. I left the cosy corporate job I’d be holding for years that I was good at and had full control of, and set up as a sole trader.
I had no clients and no office, I had to buy a car and a PC. All I had was a little money, my wits, some ideas, my wife – with a stare that definitely hinted at accusation – and three young children who were blissfully unaware but still needed food, clothing and a roof over their heads.
Exciting and scary times but, to cut to the chase, it worked. In summary, I built the business, sold it and joined the purchaser, became the boss, led an MBO, etc. My wife now only looks at me lovingly!
Being a sole trader was liberating in many respects (I wore shorts to the office for the first time) but also brought downsides I hadn’t anticipated, let alone prepared for. One of those was having no one to bounce off. In the early days, I’d call a former colleague who was very kind with his time, but I clearly couldn’t keep bothering him. I tried the kids but they lost interest whenever I raised the abolition of franking (an early project). In the end I developed a walking circuit around my newly-rented serviced office while talking to myself. It surprised me how robust my own challenge was!
There are two major hurdles to being the sole decider: (a) a lack of constructive robust challenge, which can stem from the natural inability to see a wider perspective and (b) the risk of being, maybe consciously maybe unconsciously, influenced in one’s thinking by irrelevant factors. In regulator speak (a) represents a lack of diversity in decision making and (b) concerns conflicts of interest.
These are the concerns TPR has about the gradual, but clear, drift toward sole trusteeship.
A sole trusteeship is where a board is replaced by a single corporate trustee. Provided the corporate is independent of the employer, there is no need for member-nominated trustees and, ultimately, the corporate could, for all intents and purposes, be represented by just one person. One person without cognitive diversity and who might be overwhelmed by the pressure of retaining the appointment.
The drift towards sole trusteeship has, in our experience, been driven by corporates – not with any sinister ulterior motive, but simply to make the running of their pension scheme more efficient. You don’t have to explain the jargon and the decision-making chain is much shorter and therefore quicker. This generally leads to lower cost. It is also less emotive and more business-like. Another driver has been the simple lack of people within their business who want to be involved in an unremunerated, complex, time consuming and, bluntly, risky function. Who’d have thought?
In their response to the 21st Century Trustee initiative, TPR decided against issuing rules on sole trusteeship, although they did take a few steps. They asked the team developing the Professional Trustee Accreditation framework (did I mention I was accredited in June?) to develop rules for professional sole trustees, they signposted they would be scrutinising very carefully those schemes where there was a sole trustee and they warned they would continue to survey the sole trusteeship horizon for emerging risks.
Joining the drift has definite advantages (as well as disadvantages) for a corporate, but what should they look out for when switching? Here are a few questions to ask:
· Are you an accredited trustee and, by extension, are you bound by the sole trustee rules that come with accreditation? The answer should be yes.
· Are at least two people involved in decisions? Again, the answer should be yes.
· Is diversity a consideration when selecting those two people? Again, yes.
· How are you ensuring that you are keeping proper records?
· Is there a second line of defence, independent compliance function? Yes?
· How reliant will you be on the fee income you generate from us? The answer should be something like “you are important to us, but we can easily survive without you. The fee income you generate is not so large as to influence the decisions we make.”
TPR is absolutely right to be worried and, to be fair, they are not threatening to throw the baby out with the bathwater. But that said, it is really important the industry ensures the propositions they put forward – whether as trustee firms or advisers recommending trustee firms – are robust and mitigate the risks. You wouldn’t, after all, want to get caught in a TPR stare definitely hinting at accusation.
Richard Butcher, Managing Director, PTL
