And the Objective is…?

Today, 7 January, is the deadline for schemes to submit their compliance statements under the CMA’s Investment Consultancy and Fiduciary Management Market Investigation Order. As such, many trustee groups will have spent time in the run-up to Christmas reviewing and updating the objectives that they agree with their Investment Consultant (IC). As professional trustees, we have been involved in many of these exercises and actively support an annual formal review and rating exercise, even though the regulatory requirement is, at least for now, less prescriptive.

The main reasons for doing this are to ensure that the objectives set are continually revised in light of both scheme and market developments and to strengthen the partnership between the consultant and the trustees. At a time when many schemes have seen improving funding levels against a backdrop of volatile and divergent market returns and increasing inflation, it has also provided a welcome opportunity to plan ahead for the coming year.

The Order has only been in place for a couple of years, but we are already seeing best practice evolve as the most engaged trustee groups look for a service that is some way beyond basic housekeeping and regulatory compliance.  While most IC objectives that we have seen still contain sections and scores for activities such as report timeliness, legislative updates and clarity of advice, there is a move to include explicit requirements aiming to improve investment decision making rather than just supporting investment governance.  In particular, we are seeing IC’s committed to improving trustee-side governance through training, clear and targeted advice and involvement in the idea-generation process.  We are also seeing more recognition that working with a trustee board where a professional trustee is present, let alone Professional Corporate Sole Trustee arrangements, requires a different approach, objectives and perhaps team from the IC.

In summary:

• Fellow trustees: Don’t just tick-off the CMA IC objectives review as ‘job done’ for another year (you have done it, haven’t you…?)  Instead, use it as a prompt to consider how you want to work with one of your most important advisers.
• Investment Consultants: Don’t simply re-use your standard objectives across the whole client base. Think more widely about how each group of trustees can get the best use from your expertise.

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