So, where have our discussions with trustees led us? We see scope for a further reduction in the average level of FM fees, but particularly overall costs, as extras are no longer hidden. Transparency in transaction costs, annual management charges, and fund costs will help.
We see competitive tendering as leading to greater questioning of FM fees and additional costs, including the cost of switching from one provider to another.
However, hauling a pension scheme’s funding level up is a difficult and complex task, there are a lot of services and duties to undertake to manage multi asset and liability risks well, so we shouldn’t see a race to the bottom in FM fees.
We expect trustees to ask their FM providers to tier their fees and agree a lower price for a de-risked strategy. At the same time, one should not forget there’s a great deal of work a fiduciary manager can do in running an end-game portfolio (it’s never set and forget) and/or facilitating a buy-in/buy-out. Different strategies should warrant different fee structures.