FM retenders bring fee reductions for smaller schemes

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Fees for fiduciary management have typically reduced by 6-10%, with smaller schemes benefitting more than larger ones, a new survey has found.

The Competition and Markets Authority's order for pension funds to retender fiduciary mandates more than five years old has led to a spate of reviews and, although the majority of schemes retained their incumbent manager, there were sometimes considerable reductions in fees, a new survey has found. 

Reductions for small schemes

Isio’s latest Fiduciary Management Survey, published on Thursday, shows that between 2020 and 2021, average fees reduced by 2 basis points for schemes with assets of less than £100m, and by 1bp for schemes up to £500m. For larger schemes of £1bn or more however, fees increased slightly by 1bp since last year.
The average fee for a ‘best idea’ type portfolio, based on a scheme with £500m, has gone down to 0.40% from 0.44%, Isio has found, while ‘cost effective’ portfolios saw an average reduction of 0.01% to 0.25% a year. 
For incumbent wins, reductions were mainly between 6% and 10%, but in some cases reached more than 20% of fees. 
Slightly more schemes than last year - 86% - remained with their incumbent manager. 

“This may be due to more comprehensive exercises in 2020 and a flurry of last-minute minimum compliance exercises in 2021,” Isio suspects, but later adds that “most schemes decided to undertake a comprehensive retendering process” and “only a small number of schemes took a minimum compliance approach”. 

FM evaluators used for reviews but not monitoring

The consultancy attributes the lowering of fees to the high retender activity over this period, but also the fact that 79% of were run by third-party evaluators; only one in 10 was run by independent trustees and 11% by lay trustees. The use of third parties to help with selection has grown considerably since last year, when only 57% of exercises were run by one. 
The percentage of schemes that have their FM mandate monitored by a third party has increased but remains low at 29%, compared to 22% last year. 
Paula Champion
Roger Brown
Donny Hay
Pieter Steyn

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