Professional trustee revenue grew 14% in 2022, with sole trustee roles accounting for 40% of appointments, a new survey has found. Industry consolidation means the top 10 firms are looking after a combined £1.1tn of pension scheme assets.

 

The survey by consulting firm Isio surveyed trustee firms with more than 50 appointments. Despite being lower than 2021 and 2020, the 14% figure means trustee firms have posted the third consecutive year of double-digit growth, having seen revenue growth of 21% in 2021 and 17% in 2020. 

 

 

The total recorded number of appointments among those surveyed now stands 2,100, up from 2,000 a year earlier.  
 

The sector is consolidating, with recent mergers between Ross Trustees and Independent Trustee Services, and between 20-20 Trustees and Punter Southall Governance Services. It means just 10 companies are now accountable for pension schemes with a combined asset value of over £1.1tn.  

 

    

This level of consolidation raises questions about diversity of investment approaches – or ‘herding’ – as well as conflicts, particularly in areas where schemes are also consolidating. At defined contribution master trusts, fewer people are in charge of ever larger funds, sometimes overseeing several competing providers. 

 

    

Last week, the Pensions Regulator resurrected a proposal to look into whether each pension scheme should have a professional trustee on its board, which could exacerbate the concentration of key individuals. In 2020 TPR had abandoned the idea, first mooted in a 2019 consultation, partly because of insufficient market capacity, but said it would reconsider it at a later date. 

 

The regulator is also proposing the introduction of an authorisation regime or mandatory accreditation for professional trustees. The prospect of tighter regulation comes after the liability-driven investment debacle from last autumn cast doubt over the effectiveness of pension fund governance. 

 

 

Many employers now prefer to sidestep maintaining a trustee board entirely by appointing a firm as sole trustee. 

 

“In addition to the headline third consecutive year of double-digit revenue growth and significant consolidation of major players in the sector, we are seeing other interesting trends at play. Among the most notable is the rise of sole trusteeship, both in terms of new appointments and switches from existing mandates, and the increasing use of this model by larger schemes,” said Mike Smedley, partner at Isio. 

 

Sole trusteeship accounted for more than 40% of trustee firm’s appointments in 2022 as 26 existing appointments were turned into sole trustee contracts. Isio notes that six of the firms surveyed have sole trustee appointments for pension funds of £1bn or larger, showing that this solution is not only used by small schemes anymore. 

The firms with the largest number of sole trustee appointments was Vidett, followed by Dalriada and Independent Governance Group. As a proportion of appointments, Entrust had only sole trustee roles, while the bulk of Pi's and Dalriada's appointments was also for sole trusteeship.

 

Isio classes firms into three approaches to market – those emphasising the independence of the trustee, those with an integrated approach selling a packaged governance solution which can include an executive approach, and those with a service offering that has both. 

 
Smedley said there has been a “hardening of firms’ messages to differentiate themselves in the market, ranging from the ‘focused’ firms, who prioritise trustee decision-making above all else, to the ‘integrated’ models, which emphasise a packaged solution to governance”. 

 

 

The survey also shows schemes are increasingly turning to professional trustees to improve diversity, with scheme sponsors focussing on visible diversity traits like gender or race. Just under two-fifths (38%) of professional trustees in the firms surveyed are women and 7% are from ethnic minority backgrounds. Isio speculates that demand could increase further in the wake of the Pensions Regulator’s guidance on equality, diversity and inclusion that was published last month. 

 

   

Schemes hiring professional trustees include the Reuters Pension Fund replacing trustee chair Greg Meekings with Catherine Redmond from trustee firm Bestrustees, Airbus Group hiring Lukshmi Selvarajah from Capital Cranfield Trustees to chair its UK pension scheme, and independent trustee Eileen Haughey being appointed as chair of the Barclays Bank UK Retirement Fund.