Aon Hewitt has highlighted the need for transparency in the fees charged by fiduciary managers in a new white paper, 'Understanding the fees charged within fiduciary management'.
Aon Hewitt's Delegated Consulting Services, which provides fiduciary management to 247 pension schemes globally, now has $44billion assets under management. On its new guidance to how fees are charged for these services, Sion Cole, partner and head of Client Solutions at Aon Hewitt, said:
"With the growth in fiduciary management within the UK pensions industry, it has become apparent that schemes need greater transparency from providers on what they are actually paying for. When we respond to tenders, trustees have expressed to us that both the solutions on offer from providers and the fee levels that accompany them can vary significantly - adding another level of complexity to their decision-making.
"We are very conscious that it's therefore difficult for trustees to compare like for like when assessing the options available. As a response to this, we have published 'Understanding the fees charged within fiduciary management' which aims to cut through the confusion and help trustees to understand this important topic. We also look at the key question of whether fiduciary fees are actually more expensive than schemes' existing approaches."
Aon Hewitt sees fiduciary management fees breaking down into four main components:
- Fiduciary management (provider) fees
- Underlying manager fees (ie fees paid to external managers and any internal asset management fees, including any fee savings on external managers).
- Investment consultancy fees (if any)
- Other fees, such as administration costs, custodian fees, legal review fees or transition management fees.
Sion Cole said:
"It's vital for the provider to be transparent about what fees will be charged and for trustees to have a full understanding – before appointing a fiduciary manager – not only of the overall fee being charged but also of its different components. How exactly is it charged? Are the fees 'bundled' or 'unbundled'? Are there any other costs they need to take into consideration?
"Perhaps the biggest question of all is whether fiduciary fees are actually more expensive? The answer to this is both yes and no as it very much depends on the scheme's current starting point and where they are looking to get to. In some cases fiduciary management can be more expensive but the extra costs should be weighed against the additional benefits of the approach. In other instances, moving to a fiduciary management approach can actually be cheaper - without even considering the added value it offers."
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