As retirement plan sponsors in the U.K. work to offload the burden of offering a generous defined benefit plan to employees, fiduciary managers are turning their attention to the possibility of applying their services to increasingly popular defined contribution pension fund arrangements.
“I expect that, as organizations start to get their arms around DB plans, they will look at DC plans and question if they can do something there,” said Ian Love, London-based managing director of U.K. institutional business development at SEI Investments. “There is scope to apply fiduciary management to DC, delegating day-to-day decisions and oversight.”
The focus on DC in the U.K. was heightened in October 2012 when pension fund regulatory reforms made it compulsory for employers to automatically enroll qualifying employees into an occupational plan. “Auto enrollment has been a scramble by firms to get something in place — now they are through the regulatory minefield, they might take a step back and look at the strategy,” added Mr. Love.
Nigel Birch, director at London-based research firm Spence Johnson, thinks a fiduciary management DC arrangement would need a lot of thought and work, but others say they are well on the way to offering such a solution.
“DC requires similar skills, and it is something we are seeing demand for,” said Sion Cole, partner and U.K. head of client solutions-delegated consulting services at Aon Hewitt. “It is something whereby we expect to see growth in 2015 and beyond. People are looking for better outcomes in DC — that is where fiduciary management comes into its own. The solution will be different but use the same skill set — having best-in-breed managers, better portfolio management. ... We expect to make some noise around that this year.”
Meanwhile, others are already offering these types of services to DC pension funds.
“Mercer started its fiduciary management business in a DC market — in Australia — as a combination of manager selection and asset allocation,” said Dan Melley, London-based partner and head of Mercer Ltd.'s fiduciary management business in the U.K. “So a quarter of our business is a DC model,” he said. Mercer has $21 billion of fiduciary management business in Australasia. “We have started that here in the U.K. (within Mercer's workplace savings division) which has an element within the investment piece of delegated portfolio design, asset allocation and manager selection. We also have delegated DC in the U.S. market.”