Trustee toolkit online learning
Go to the Trustee toolkit The ‘Running a scheme’ module contains tutorials on ‘Introducing advisers and service providers’ and ‘Appointing advisers and service providers’. You must log in or sign up to use the Trustee toolkit.
Selecting and appointing advisers and service providers
By appointing advisers and service providers, you’ll benefit from a diverse range of views and experience.
They play an important role in how you run your scheme, providing additional expertise, skills and knowledge so you can meet your objectives. Choosing the right people is all part of good governance.
You should agree and set clear criteria, and consider the following:
- What the specific requirements are for your scheme and how an adviser can help to meet them.
- The different types of service available in the market.
- Whether they have experience of working with similar schemes.
- The reputation of different advisers and providers – you should ask for recommendations from a range of reputable sources.
- Whether they hold any relevant independent accreditations.
- The contract terms – make sure they are consistent with your scheme’s aims and objectives.
- If you’re choosing between multiple providers, invite tenders from them and ask for consistent and comparable information.
It’s important that you are clear about the levels of service and advice you expect and agree standards that you can measure performance against.
Remember, you remain accountable for any activities and tasks you delegate, so you should retain sufficient oversight to make sure the scheme is operating effectively, including any services that are provided in-house.
You should regularly assess their performance against targets, measures and objectives that you’ve documented, and service providers should have suitable service level agreements that are appropriate for your scheme. You should consider assessing their performance every quarter, though this will depend on the size and complexity of your scheme and how involved the advisers and service providers are with the way it is run.
If you detect poor performance, take steps to address it. In most cases, you can initially address this by having a conversation about the problem or using any complaints procedures or mediation processes in the contract.
If no sufficient improvements are made, consider changing your adviser or service provider, but think about any risks, practical difficulties and costs to members before you make a decision to end a contract.
You should invite your advisers and service providers to your board meetings, where appropriate, to explain particular advice, products or services and answer questions from the board. This will help you work together effectively and manage the scheme well.
Understanding and scrutinising advice
In order to make informed decisions, it’s important that you fully understand the advice you are given – scrutinising and challenging it if necessary. You might want to ask for further information or explanation, especially if there is a commercial incentive for the adviser or service provider. If you ask for further information, it shouldn’t delay important or difficult decisions.
You should challenge your advisers to be clear about the rationale for their recommendations. You might consider asking if there were other options that were discounted by your adviser and why. Perhaps there are simpler options that might achieve the same outcome, or you may ask them about the risks or consequences of delaying a decision. You should challenge your adviser to be clear about the risks and benefits of taking a course of action, as well as the costs and added value.
Reviewing contract terms
You need to be familiar with, and have a clear understanding of, the impact of the terms and conditions of contracts for services, and you should seek legal advice when you review contracts. It’s important to ensure contracts are consistent with your scheme’s aims and objectives.
There are a number of questions you can ask when you’re reviewing contracts.
It’s important to have arrangements in place to deal with risks which may affect members’ benefits. This includes processes to identify and manage conflicts of interest.
Declarations of interests and conflicts should be made when all advisers are appointed, and advisers and service providers should operate their own conflicts policy and disclose all conflicts to the trustee board.
Business continuity planning
In respect of member data and general scheme administration, advisers and service providers should have a business continuity plan (BCP) in place, which sets out the actions to take if events take place that would impact on the scheme.
Their plans should also cover what would happen if their business discontinued. You may want to establish where the liability lies if their processes are interrupted by a BCP event, or where a BCP fails.
Managing your advisers and service providers – how to work well together
Improving the way you work
Not understanding information and not asking for clarification
An investment adviser regularly discussed risk management with the trustees of a defined benefit scheme, and explained that the fund’s investment strategy was considerably exposed to a fall in interest rates. The adviser presented a hedging strategy, designed to hedge interest rate risk while maintaining exposure to growth assets.
The board discussed the adviser’s proposal, but instead of making a decision, they asked for further information to consider. The issue was raised again and again across a number of trustee meetings but the board could not reach a decision.
Interest rates fell before the trustees had made a decision and the scheme’s funding level was reduced, which demanded for greater support from the employer.
The adviser had failed to present the risk and the mitigation strategy in a way the trustees could understand and act on. Delaying the decision had the same effect as deciding not to act.
What could they have done?
Trustees should challenge their adviser to clearly communicate the rationale behind their recommendations, so they can make informed decisions. This is particularly important if the information is technical and complex. They could ask the adviser to explain it in a way that could be communicated to members.
Not challenging advice or having a good understanding of contract terms
A trustee relied on the scheme actuary to carry out all transfer calculations – at additional cost for work that was already included in the administration fee.
The administrator provided all the necessary data on a spreadsheet that the actuary used to carry out the calculation. This had been going on, unchallenged, for a number of years, at considerable additional cost due to the trustees’ lack of knowledge and understanding.
When challenged by the trustees, the actuary argued that the complexity and size of transfer values meant they had to conduct the work and initially refused to provide a spreadsheet to the administrator to use. This prompted a full review, which cost more time and money.
What could they have done?
This situation could have been avoided in the first place by ensuring that the trustees fully understood the scope of the service, negotiating the contract terms where appropriate and actively monitoring performance.
How to work well
Managing service providers
A service provider had underperformed against their targets, which led some members to complain. The board considered the complaints and the reasons behind them to ensure they responded properly and to understand any underlying issues. They then gained reassurance from the provider that they would put measures in place to address the issue and stop it happening again. The trustees wanted to understand the service provider’s processes and reflect on member experiences until they were satisfied that the issue had been rectified and would not impact further on members.
The trustees of a scheme thought areas of the investment report were unclear, so they openly challenged and questioned their advisers until they were satisfied in their understanding of the reports and propositions being discussed. The scheme’s advisers all agreed to improve consistency so that reports were more accessible for the trustees.
Requesting meaningful reports
The trustees of a scheme challenged the reports they had been sent by their service provider, and wanted more focused information to make decisions, which would improve the efficiency of their trustee meetings. To improve matters, they requested succinct and targeted information from their service providers, rather than lengthy case backgrounds. This would help them to focus on the root causes of any complaints, set a strategy and monitor member outcomes.
A board used their advisers to benchmark their scheme and compare its performance to others so its position could be understood in relation to the rest of the market. The trustees wanted their advisers’ views of their scheme’s strategy and actions, and what the advisers observed in other schemes, so they could compare and feed this information into their business plan.
Check your governance
Do you do the following?
- Document the roles, responsibilities and accountabilities of advisers and service providers?
- Understand the impact of the terms and conditions of contracts with service providers?
- Understand and scrutinise the advice you receive?
- Regularly review the performance of advisers and service providers against documented service standards or objectives?
- Receive periodic progress reports to the board from service providers?
- Guidance on advisers and their roles
- Working well with advisers, providers and employers (this guide has been drafted for schemes with money purchase benefits, however others managing pension schemes may find it useful)
- Guidance on relations with your advisers
- Managing service providers statement (PDF, 410kb, 2 pages)