Cardano's Richard Dowell calls for fiduciary managers to provide a proof statement for Trustees

There is still some scepticism within the pensions industry about whether fiduciary management actually works. This is a pretty common reaction to new developments in the pensions industry as we have a healthy distrust of firms that enter the market promising a brave new approach that will help solve all our problems. However, in reality I think the case for fiduciary management is compelling, but we just need to help people see what is being delivered.

For a few years now, we have published our results showing that it's possible to manage funds in this way and achieve a steady increase in the funding ratio with no nasty shocks – a type of transparency that should really be standard.

We regularly speak to people who are interested in fiduciary management but still question whether it works. Schemes are only going to opt for a fiduciary management approach if they are confident that it can deliver better results and publishing the results of this approach is basically a proof statement that will benefit the whole industry, not least these trustees.

For this reason, we are determined to get the fiduciary management industry to start publishing their results. We have even spoken to a number of third parties to see if they can help, but they still need the support of other firms. While we believe this may soon happen, it would require the consent of all firms and many still don't seem to want to take part.

So what's holding other fiduciary managers back? Some firms say that every portfolio is different with having its own characteristics, constraints and guidelines, making comparison is unfair. The argument over comparing different mandates doesn't really hold up as there's no reason they couldn't all be compiled together to show an average.

The fundamental point is that if a manager is willing to accept a mandate then they need to be willing to show that they can deliver. This is true regardless of the individual constraints that apply.

There have been a number of surveys published in the pensions press that highlight fees as the big challenge for trustees when considering a fiduciary manager. There is a general feeling of discomfort among pension funds that fees are higher than under the advisory approach – so approach with caution. In most cases, it is probably true that a fiduciary manager will cost more than an investment consultant, however I question whether this is the right comparison to make.

The key for me is to think about the value for money - how do the costs compare when we think about what can be (and is being) achieved? When we think about the clients we have been working with over the last six years, they are in a much better positon now in terms of overall funding level growth and, more importantly, have achieved this growth without having to suffer any of the shocks associated with market falls and shifts in yields.

I'd argue that although appointing a fiduciary manager gives access to a full time team, who can act in a much more nimble and timely way, the real value of this approach is the delivery of results, which for trustees means stable improvement in their funding level. And that is what the fiduciary management industry needs to help us show by putting their results out there for scrutiny.

Being more transparent isn't just about coming clean. Trustees want a proof statement that fiduciary management actually works, so let's work together and provide this for them.

Written by Richard Dowell, Head of Clients at Cardano.