What do you need to consider when setting strategic objectives?
29 Jul 2019
What’s happened already?
At the end of 2018, the Competition and Markets Authority (“CMA”) published its report following a review of the investment consulting and fiduciary management markets. Earlier this year, the CMA set out a draft Order outlining requirements for the appointment and governance of fiduciary managers, and for pension scheme trustees to set objectives for their investment consultants. The final Order, was released on 10 June 2019, which now also extends to the LGPS.
What do you need to do?
As a trustee, you’ll have to set strategic objectives, for your investment adviser, to help focus on the big picture and cut through the noise out there in the market.
Our interpretation of the Order is that these objectives must:
- Include a clear definition of the expected outcome;
- Include set timescales over which it will be delivered; and
- Be appropriate and reasonably achievable.
Setting objectives to fulfil these criteria will be difficult but will allow you to obtain a deeper understanding of what success looks like and which factors are within your/your investment adviser’s control. This should enable you to identify good advice and to challenge your advisers when things aren’t up to standard.
These objectives will need to be in place six months from the date the order is passed, which is 10 December 2019. You will be hearing a lot more from your investment adviser on this over the coming months.
What are the wider considerations for you?
Thinking about these objectives can lead to wider considerations around how trustees govern their pension schemes. What is the long term target of your scheme? Is it insurance buy-out, self-sufficiency or transferring to one of the new commercial consolidators – Clara-Pensions or The Pension SuperFund? All of which are worthy of consideration.
Consolidation has been one of the most significant new trends to shake up the DB industry – allowing for greater awareness and demand for the potential benefits consolidation and improved governance can achieve. Below are just some of the governance models available to help you reach your ultimate goal more effectively and efficiently. Setting clear and measurable objectives for all stakeholders, including your investment adviser, will help to track progress towards that goal and plan for the future, which in turn improves the security of your members’ benefits.