Sponsored article – Fiduciary management Tim Dougall, head of fiduciary management Lisa Purdy, head of fiduciary distribution
FIDUCIARY MANAGEMENT: A BIG SERVICE FOR SMALL SCHEMES
Smaller schemes are missing out on fiduciary expertise and so have greater exposure to market shocks. portfolio institutional spoke to Legal & General Investment Management’s Tim Dougall and Lisa Purdy to find out how they are supporting smaller schemes.
How has the market turbulence resulting from the pandemic impacted smaller pen- sion schemes? Lisa Purdy: Smaller schemes tend to suf- fer worse funding outcomes. According to The Purple Book, those with 100 to 1,000 members are the worst funded that’s over 2,000 schemes. So, this turbulence is impacting a big part of the market. The challenge is that smaller schemes tend to have less time, resource and budget. This is why we are seeing a lot coming out from the regulator and the PLSA around consolidation. Tim Dougall: These big market falls are similar to the position we saw after the financial crisis where schemes that had not diversified or hedged their risks suf- fered from falling funding levels. If markets are okay and rates are not mov- ing, then it isn’t a problem, but it comes to the fore after a big crisis when people realise that they are exposed to some big impacts.
It is the smaller schemes, the ones with little or no governance budget, diversifica- tion or risk protection, that suffer the most.
How is Legal & General Investment Man- agement (LGIM) supporting smaller pen- sion schemes? Purdy: Smaller schemes have been under- served in the fiduciary management space where they have either not been able to access such a service or use a cut-back version. In response, we are launching LGIM Nav- Guide, which we have developed to deliver fiduciary management to small schemes. It uses an innovative technology platform so that we can provide a low cost offering without having to reduce services. This platform enables smaller schemes to access all the great things fiduciary man- agement offers including LGIM’s exper- tise and the governance benefits that ena- ble them to concentrate on their strategic decisions and leave the day-to-day imple- mentation to experts.
16 | portfolio institutional October 2020 | issue 97
Through our link with Legal & General, LGIM NavGuide also provides a seamless route to buyout. Small schemes can strug- gle to gain traction with insurers in the buyout market. So, giving them a seam- less route through and the expertise is helpful. We are using the phrase: better, cheaper, faster. LGIM NavGuide offers better gov- ernance and investment strategy at a lower cost. Schemes can access online dashboards, real time information and rapid delivery, so: better, cheaper, faster. Dougall: There are low cost funds that have good implementation, but where smaller schemes struggle is on the strategy piece and being able to imple- ment something that is truly diversified. Helping with strategy, cost-effectively, and doing the day-to-day management for them is where we are trying to help.
Technology has the potential to transform the pensions landscape, so how else are you using tech? Dougall: The pensions industry has been slow to adopt technology despite it trans- forming other industries. What we are trying to do is bring the benefits of tech- nology to the pension investment market.
There are a couple of things we can do with it. It hugely increases efficiency, for example. If we can use technology to improve the way we collect and manage data that will allow us to provide lower- cost services, which will flow through to a scheme’s investment performance. It can also help provide better client ser- vices. Online tools help schemes access and update information quickly and efficiently. With LGIM NavGuide we can provide strategy advice to smaller schemes more cost effectively. Previously, they may not have been able to afford advice that is tai- lored to them. We can now take some of the benefits the larger schemes enjoy, scale them down and bring it to the smaller schemes. So,
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