The fiduciary management premium: Worth it or wasted?

I’m of a generation whereby tap-to-pay, whether via a debit or credit card, or via Apple Pay is a relatively new phenomenon. Paying with a tap feels painless - almost invisible. Fiduciary management fees work the same way: quietly deducted, rarely questioned. But should they be? 

I’ve outlined my personal views on this below.   
 

What is fiduciary management anyway? 

Asset management opens doors to global investment opportunities, aiming for stronger returns. Fiduciary management takes this further, but at a price. It’s a niche service for pension schemes where the fiduciary manager calls the shots: setting asset allocation, selecting fund managers, and layering on fees - often a percentage of scheme assets - above the slightly discounted investment manager costs their purchasing power achieves. Some even steer money into their own funds, raising questions about independence and value. 
 

How did we get here? 

Back in the early 2000s, UK pension schemes were in deep deficit. Trustees needed strong returns to plug the gap - some consultants recommended complex portfolios to deliver the returns and manage risk. Those consultants then came up with a pitch: “Your portfolios are too complex to manage alone - let us take over.” Fiduciary management was born. And the cost? Typically 20–30 basis points (0.2–0.3%) of assets - plus underlying fund fees. That’s 3–5 times the old consultant charges. You don’t need to take my word for it; this was the very genesis of the 2018 Competition and Markets Authority investigation into the supply and acquisition of investment consultancy services and fiduciary management services. 
 

Fast forward to today 

By late 2022, around 1,000 schemes had signed up. Funding positions improved - but was that down to fiduciary managers, rising gilt yields or deficit contributions? Hard to say. Performance varies hugely by manager, time period, and scheme specifics. 

Since 2022, things look worse for fiduciary management. With funding levels high, schemes need modest returns. Yet many fiduciary portfolios remain bloated with illiquid assets, complex strategies, and active bets that have dragged on performance. Fees have dipped slightly, but they’re still hefty. Maybe complexity is there to justify the price tag? 
 

The invisible cost problem 

Here’s the kicker: the fees come straight out of assets. No one writes a cheque. No one feels the pain. If trustees had to sign off every quarter, might they question the value they are receiving to a far greater degree? I suspect so. 
 

Does fiduciary management still make sense? 

For some schemes, fiduciary management might still make sense - and if so, you need to choose with precision to ensure they have the skillset to deliver what you need.  

But for many? No, not least because many of the original drivers for FM have now fallen away. Today’s governance standards are higher, asset transitions are simpler, and professional trustees are commonplace. They can agree strategy and review managers, with independent advice, at a fraction of the cost. 

An example: £0.5m left on the table every year, here’s how 

Situation 

A typical £250m scheme we helped that was using fiduciary management had fees that were high and opaque, eroding returns through layering costs for asset allocation, manager selection, and monitoring. 

Savings if trustees took back control 

Switching to a simplified investment strategy would save costs by over £0.5 million every year - without sacrificing performance or risk. That’s even after factoring in the additional governance work required by a professional independent trustee. 

A better alternative 

A simplified portfolio would retain expected returns and risk, lower fees and reduce complexity with a low governance burden for trustees. It could even potentially be managed under a single investment manager arrangement. 

This example highlights the core issue: why pay more for less through fiduciary management? Trustees can simplify, save, and take back control. 

My view 

Fiduciary managers have been charging a premium for 20 years. It’s time to ask: do you really need to pay it? Or could you take back control and use the savings to improve outcomes for members and sponsors?