Over the last decade, we have seen a dramatic rise in the presence of professional trustee firms, driven by increased regulation, growing consolidation and more complex strategic activities, requiring trustee boards to draw on more resource and expertise across an expanding array of topics.

The latest edition of Isio’s Professional Trustee Survey was accompanied by a comment that increasingly responsibility for members’ benefits rests with relatively few professional trustee firms, presenting new challenges for the industry.

Isio estimated that the 12 firms surveyed, including ourselves at Independent Trustee Services (ITS), now have over £1trn of assets under their control, looking after over five million members in over 2,000 pension schemes.

There can be little doubt that the overall impact of the professional trustee (PT) is positive, bringing rigorous industry standards and a clear governance framework. However, what are the potential risks in such an apparent concentration of responsibility?

I would suggest that the top three are:

• Competence and capability – with such rapid growth, how can we ensure that schemes continue to receive the quality of decision-making and governance support that they need?

• Conflicts and independence – with opportunity for growth, how can we ensure that commercial considerations are kept separate from scheme governance and conflicts of interest are always effectively managed?

• Transparency and accountability – as more schemes move towards outsourced governance models, how can we provide stakeholders, including members, with confidence that their pensions are being looked after properly?

The professional trustee industry isn’t alone in facing these challenges, of course, but as an evolving industry, we should be especially open to test, challenge and change.

Competence and capability

Many PT appointments result from a need to improve the standard of governance and address capacity issues – so we should recognise that the current direction of travel, whilst leaving space for alternative governance structures, is an improvement on where we have come from.

Accreditation for decision-makers via examination and professional references is the norm in PT firms – not just for lead trustees, but also, here at ITS, for our support team. Ongoing CPD requirements similar to other professions help ensure that people maintain currency.

Most firms operate a team approach, reducing reliance on any individual, improving the quality of decision-making. Scalable resource models and a large, varied pool from which to draw recruits make resourcing less of an issue than other professions.

Conflicts and independence

Trustees’ fiduciary duties are, of course, paramount. The degree to which there is potential for commercial considerations to influence decision-making will depend on the business model of the firm in question (and is greater when this includes services falling outside the trustee’s area of responsibility), but in my experience, PT firms are very aware of not only conflicts, but the appearance of potential conflicts, so manage and document these very carefully. These policies and registers should be available for fellow trustees, sponsors and other interested parties.

Most trustee appointments are in the gift of the employer. Does the increasing number of PTs present an increased risk of employer-bias? There’s no evidence of this. Compared to alternative models, the inclusion of a PT seems to lead to more robust negotiation and evidence-based decision-making.

Transparency and accountability

How, as an industry and as individual trustees, do we give members the confidence that we are looking after their schemes appropriately and fulfilling our fiduciary responsibilities?

What about further regulation of the industry? The current regulatory framework provides (amongst much else) reliable assurance around scheme funding, notifiable events, effective systems of governance, as well as methods of arbitration and redress for members.

An increasingly large, competitive, and fluid market for professional trustee services provides advisers and TPEs (influential in the selection of the majority of professional trustee appointments) with a good understanding of the strengths of individuals and firms.

Whilst these structures might maintain quality, what about transparency?

In themselves, the statutory and regulatory requirements to disclose, make available and report information do not guarantee effective disclosure or communication (most Chairs’ Statements for example). They do, however, provide a framework on which to build and, increasingly, a searchable source of information for interested members.

So, should members and the industry be concerned by the rise of professional trustees? My view is no. The overall impact is positive, and the risks are low. Does that mean members can form that view, too? That’s our next challenge. As an industry, we need to prepare ourselves for member scrutiny as firms as well as a trustee body. It is worth considering how we can provide clear member-focused information to bring the pension scheme membership on the journey with their pension scheme, earn their trust and allow them to understand and appreciate the value added by a PT.

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