The sole trustee market should anticipate a persistent slowdown in growth over the longer term, Hymans Robertson’s latest paper has suggested.

The paper said that there would likely be an initial uptick in growth, due to continued demand from 4,000 small defined benefit (DB) schemes, 80 per cent of which are not currently governed by sole trustees.

However, it claimed that this would only be temporary, and that, in the long term, the trend of trustee board appointments moving to sole trusteeship will fuel a slowdown in the market.

Commenting on the findings, Hymans Robertson head of sole trusteeship, Shani McKenzie, said: “We looked at the market and assessed where sole trustees are most used today.

"There is a concentration in governing small schemes with less than 1,000 members. Only around 6 per cent of DB schemes with 10,000 or more members are governed by sole trustees, and we anticipate notable growth among these larger schemes.

“Faster windup timescales for small schemes have contributed to the recent slowdown, but some 4,000 small DB schemes remain. Only 20 per cent of them use the sole trustee model, so there is huge potential for significant growth opportunities here, too.

“If this is realised, the slowdown we have observed will be temporary as firms continue to recruit and new firms enter the market.”

The paper also explored some factors and scenarios that will likely have the biggest impact on the market in the next five years.

It considered possible outcomes if two key factors change: buyout becomes more or less affordable and if regulation that incentivises run-on materialises.

The paper also assessed the potential impact of four scheme scenarios: buy-out on the horizon, quick buyout, open market, and run-on boom.

Its analysis revealed that if a quick buyout market develops, a short-term boom could occur, but a reduction in the need for sole trustees' services would follow.

In all other scenarios, sole trusteeship and sole trustee consolidation looked set to grow.

McKenzie said historical drivers of sole trustee market growth remained pertinent to schemes of all sizes considering their governance options.

“A key question underpinning future demand for sole trustee services is whether professional trustee firms can continue to resource the increasing number of schemes.

“The continued demand for professionalisation will encourage the entry of new firms, therefore challenging consolidation of market providers,” she added.

“However,” continued McKenzie, “the levers impacting growth over the longer term become more uncertain. There will be a tipping point in terms of professional trustee firms’ ability to recruit trustees and resource the increasing number of appointments successfully.

“Continued recruitment and emergence of new firms feel plausible and will also contribute to the cause of any consolidation in the professional trustee firm landscape. It could also extend the timescales for that tipping point beyond the next five years, after which we anticipate a persistent slowdown over time.”

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