One of the 'must do' and 'must get right' activities for pension fund trustees is the selection, appointment and review of professional advisers and other service providers. Mark Hodgkinson, director at Muse Advisory sets out the best approach.

Increasingly trustees are tendering such appointments and hiring a "TPE" to augment their own skills and experience and to manage the process efficiently. TPE or Third Party Evaluator is not a catchy title. It refers to specialist consultants who can expertly guide trustees through the process of selecting advisers and service providers. While this is not a new activity, the use of TPEs has grown steadily over the last ten years to the point where there have been recent calls for TPEs to be regulated or at least to subscribe to a recognised code of conduct.

The TPE process itself is not specific to the pensions world; it is a management consulting service provided in many sectors. Management consulting is an unregulated 'industry' but any good consultants will be able to demonstrate evidence of the standards to which they operate. Buyers of TPE services need to be clear about what they are looking to achieve and then apply some elementary due diligence before hiring their TPE.

TPEs play an important role in helping trustees make well-judged appointment decisions, whether that be for a scheme actuary, third party administrator, a fiduciary manager or other adviser. They should come with a proven process, relevant experience, specialist market knowledge and a host of other skills. The necessary due diligence is not demanding but will take a bit of effort; here's a starter:

First, test candidates by requiring robust evidence of their experience and skills, e.g.:

- A robust and relevant process: the process should identify your specific priorities, be transparent and free of irrelevant detail.

- A process that will properly identify your critical needs.

- In depth market knowledge: evidence of appropriate breadth and depth of market knowledge and insights.

- Proven experience and track record of the project team; evidenced by sound references. 

Second, make sure the commercial elements stack up;

- Review some comfort factors e.g. freedom from conflicts of interest; maybe membership of professional bodies and adequate professional indemnity insurance.

- Price: is pricing transparent? Does it properly reflect the full scope of the project? Understand precisely what it is you are being asked to pay for.

We've all met consultants who can talk a good game – but for trustees, with weighty fiduciary responsibilities, testing the walk is more important than hearing the talk and arguably a more reliable indicator than a TPE 'kitemark'.

Written by Mark Hodgkinson, director at Muse Advisory.