25 May 2022 3 min read

Sole trusteeship without pride or prejudice

By Lindsey Bass

Offering sponsors direct access to a consolidated board with dedicated pension professionals, the sole appointee route is growing in popularity.

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“It is a truth universally acknowledged, that a single man in possession of a good fortune, must be in want of a wife.” So begins Jane Austen’s Pride and Prejudice.

To adapt the quote for the world of pension schemes, we could say: “It is a truth universally acknowledged that well-governed boards should deliver better outcomes for members.” The question up for debate is what effective governance should look like.

And to stretch the quote even further, if the trustee board is managed by “a single man in possession of a good fortune”, then he must be in want of an wife/alternate trustee to provide diversity and support.

Sole trusteeship (ST) is not a new phenomenon, but it is one that has picked up significant momentum in recent years, with approximately a third of professional trustee appointments being ST, according to Isio’s recent survey. This blog will summarise what ST is, consider a few factors that may influence the decision to choose an ST model, and examine the additional benefits schemes may gain by taking this approach.

What is sole trusteeship?

The ST model offers the sponsors direct access to a consolidated board with dedicated pension professionals. As noted in a recent survey from Ross Trustees, the potential benefits can include:

  • Better informed and more proactive trustees
  • Streamlined process
  • Cost efficiencies
  • Swifter decision making

In practice, ST generally involves replacing the full board of trustees with a single company-appointed corporate professional ST, using one of many firms.

What this should not mean is that schemes are left with just one named trustee while keeping their fingers crossed they don’t go on holiday or fall ill at a key decision-making point. Based on best-practice guidance from the Association of Professional Trustees, sole appointments should demonstrate there are suitable alternatives and back-up resources behind any named individual to mitigate key-person risks. as well as ensure there is an appropriate level of professional knowledge and challenge in place to ensure effective governance.

Key considerations

The Pensions Regulator supports the ST trend, but sounds a note of caution, recognising risks in some circumstances. What questions should be asked to ensure the best member outcomes?

We believe a good starting point is to consider the deficiencies within the current board structure that an ST model will seek to mitigate. In our view, schemes should be clear on their objectives and the problem they are looking to solve. Could it be resolved by simply adding one or two professional trustees to the board? If it is about getting over the hump of a specific project, could an ST be brought in for a fixed-term project, with the co-trustees in shadow?

How will diversity of thought and inputs be managed under a ST arrangement? All walks of corporate life are increasingly focused on integrating diversity and integration to support constructive group decision making. Given the need to ensure members’ interests are suitably represented and included, can this still be delivered with the sponsor and ST engagement model? Who are the alternatives and back-up trustees referenced above, and how do they work together in practice?

Additional benefits

For those managing the day-to-day processes of overseeing a pension scheme it is understandable that those potential benefits noted by Ross Trustees are both desirable and ring true. But what other benefits could be realised by moving to the more streamlined model?

If a scheme’s chosen ST can work closely with a cornerstone asset manager and/or an investment platform solution, this could additionally deliver:

  • More efficient/effective investment solutions
  • Investment solutions designed for the full journey to endgame
  • Smoother endgame exits
  • Lower fees

Reducing additional layers of complexity, governance and fees are all essential in supporting schemes on an efficient transition to their endgame, in our view.

As Elizabeth Bennet and Mr Darcy discovered in Pride and Prejudice, being clear about one’s ultimate objectives is a prerequisite for strong relationships based on trust – an outcome that can benefit everyone involved.

Lindsey Bass

UK Consultant Relations, Institutional Distribution, Institutional / Distribution

Lindsey is Head of UK Consultant Relations with responsibility for LGIM’s strategic relationships with investment consultants and professional independent trustees. Lindsey joined LGIM in 2015 from the credit specialist Cairn Capital where she had the role of UK Institutional Sales and Consultant Relations. Prior to that, she ran Investor Relations at Credaris and previously managed Consultant Relations at the London hedge fund, BlueCrest Capital. Lindsey graduated from the University of Leicester and holds a BSc in Communications, is a charter holder of the Chartered Alternative Investment Analyst Association and holds the IMC.

 

 

Lindsey Bass