Several UK investment consultants are directing pension fund clients to their own lucrative fiduciary management services without putting contracts out to tender, which could lead to conflicts of interest. While some consultants defend their practices, others in the industry argue that fiduciary mandates should be awarded through an independent and competitive selection process to avoid potential conflicts of interest between advisory and fiduciary services. UK consultants currently manage 80% of fully delegated fiduciary mandates.

1. © THE FINANCIAL TIMES LIMITED 2013
Investment consultants that fail
to open their fiduciary mandates
to external tender – and instead
direct their pension fund clients
to their own fiduciary services –
will come unstuck, a large con-
sultancy has said.
“This type of procurement
process can’t continue as the
market grows. Something is
likely to go wrong,” said John
Walbaum, a partner at Hymans
Robertson, which has steered
clear of fiduciary management to
avoid conflict of interests.
Several consultants have been
converting advisory mandates
into more lucrative fiduciary
ones without a tender exercise,
he added.
His comments come in response
to suggestions in last week’s
FTfm that consultants were gob-
bling up the lion’s share of fidu-
ciary mandates in the UK.
Mr Walbaum warned that suc-
cessful fiduciary management re-
quired a significant number of
back-office staff, including com-
pliance specialists and skilled
asset managers, in order to de-
liver returns.
“If consultants are doing fiduci-
ary work they need to build re-
sources,” he said.
However, Michael Dempsey,
head of fiduciary management
for Europe, the Middle East and
Africa at Mercer, another large
consultancy, defended its serv-
ice. “We have supported the de-
velopment of our fiduciary
management services with sig-
nificant investment in dedicated
resources in this area.”
Towers Watson, a consultant,
also said it had a large back-of-
fice team, which was competi-
tive, winning fiduciary mandates
through open tender.
Headhunter T.C. Jefferson, a
senior consultant at Plenum
Group, said he was seeing rising
demand for sales and technical
fiduciary management staff from
both consultants and specialist
fiduciary managers. However, he
believed consultants would con-
tinue to have an advantage in
winning fiduciary mandates be-
cause of their “established rela-
tionship with clients”.
UK investment consultants
manage 80 per cent of fully dele-
gated fiduciary mandates.
News
Fiduciary conflict continues
UK consultants manage 80% of fiduciary mandates Charlie Bibby
By Ruth Sullivan
‘Some consultants
will come unstuck’
Hymans Robertson
avoids the sector
FTfmTHE AUTHORITY ON GLOBAL FUND MANAGEMENT | Monday April 22 2013

2. © THE FINANCIAL TIMES LIMITED 2013
Fiduciary clash spooks UK market
FTfmTHE AUTHORITY ON GLOBAL FUND MANAGEMENT | Monday April 15 2013
Investment consultants stand
accused of promoting the idea of
fiduciary management to their
pension fund clients and then
directing them to their own fi-
duciary services instead of put-
ting the contracts out to tender.
Fiduciary management, which
is a lucrative business for
providers, involves more “hand
holding” with pension fund
clients and consequently higher
fees.
Numbers from KPMG for the
UK – one of the largest fiduciary
markets in Europe – show that
investment consultants manage
80 per cent of fully delegated fi-
duciary mandates. And over the
12-month period to June 2012,
consultants “won” 30 of the 39
mandates up for grabs.
A concerned Calum Brunton
Smith, head of fiduciary re-
search at KPMG Investment Ad-
visory, said the number of fully
delegated fiduciary mandates
increased 29 per cent during the
same year to June 2012. “[But]
the majority of those mandates
would not have been open mar-
ket tenders,” he said.
“Just because a consultant ad-
vises a client [on investment], it
doesn’t mean the same company
is best for fiduciary manage-
ment,” added Mr Brunton
Smith.
Earlier figures from a KPMG
fiduciary report showed more
than 50 per cent of fiduciary ap-
pointments made by consult-
ants were not referred to an
alternative provider in the 12
months to June 2011. Over the
same period, however, specialist
providers and investment man-
agers won all of their mandates
via a competitive bidding
process.
This exposes “a conflict of in-
terest”, according to Nigel
Birch, a director at Spence
Johnson, a research consul-
tancy. “When your trusted ad-
viser suggests you do something
[such as fiduciary manage-
ment], an independent element
must be required at some
point.”
Michael Dempsey, head of fi-
duciary management for Eu-
rope, the Middle East and Africa
at investment consultant Mer-
cer, batted away the criticism.
He believed it was up to insti-
tutional investors to do their
own due diligence and that pro-
viding clients with a line-up of
fiduciary providers – rather
than its own – was not part of
the job.
“We do not run a tender for
any fiduciary mandates for
clients coming to us.” If a pen-
sion fund wants a “beauty pa-
rade of competitors” they need
to go elsewhere for that, he said.
He also brushed aside accusa-
tions over potential conflicts of
interest, saying it was enough to
be transparent on the different
fee costs of advisory and fiduci-
ary management services.
But Alan Pickering, chairman
of BESTrustees, which provides
governance services to pension
funds, said he felt “uncomfort-
able to have people managing
pension fund assets where there
was no selection process”.
He favoured a clear separation
between advice and fiduciary
management. “If I am on the
buyside I would rather buy an
advisory service from a consult-
ant and a product from a prod-
uct provider,” he said.
SEI, a fiduciary specialist, is a
case in point. It sold its consul-
tancy business in the mid-1990s
to avoid any possible conflicts of
interest.
Patrick Disney, head of institu-
tional business, said the switch
was a good move for SEI.
“It is a better way to be ac-
countable for the advice you are
giving, but it is also a better
business model because you are
getting paid an asset manage-
ment fee rather than being paid
by the hour as an investment
consultant.”
In response to the accusations,
Chris Ford, Towers Watson
head of investment for Europe,
the Middle East and Africa, said:
“All our [fiduciary] mandates go
out to open tender.”
Europe’s fiduciary manage-
ment market topped €1tn in
managed assets in 2012.
Mandates
Appointments
expose conflicts of
interest, writes
Ruth Sullivan
Fiduciary management
Source: SpenceJohnson
Assets under management by region (€bn)
NetherlandsUKGermany FranceItaly Other
Europe
Total
678.341.918.7 5.715.9 0.5 761.1
720.5
95.6
40.1
112.5
31.8 46.6
1,047.1
2010
2012
UK investment consultants manage 80 per cent of fully delegated fiduciary mandates
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