Managing advisers and service providers

General code in force: 28 March 2024

This module forms part of our expectations for trustees of those schemes required to operate an effective system of governance, see Systems of governance.

1. Governing bodies of schemes with 100 or more members¹ that are required to maintain an effective system of governance should follow the processes set out in paragraphs 6 to 9 below for selecting, appointing, managing, and replacing professional advisers and service providers. Other schemes may wish to consider them as good practice.
2. The governing body often appoints professional advisers and service providers to its scheme. In some cases², the governing body is required to make these appointments. Advisers and service providers may be appointed to carry out specific tasks such as administration. They also provide advice and supplement the skills and knowledge of the governing body.
3. Where the governing body appoints advisers and service providers, it retains ultimate accountability. The governing body should be able to demonstrate that it can manage commercial relationships. The principles below apply equally to in-house and third-party appointments.
4. When appointing service providers, governing bodies of certain defined contribution schemes must disregard any requirements of the trust deed or scheme rules which prescribe or restrict the choice of any adviser or service provider to the scheme³.
5. The policies described below regarding outsourcing should:
   1. only take effect after they have been approved by the governing body, and
   2. be reviewed at least once every three years.
6. In selecting advisers and service providers, governing bodies should:
   1. Establish agreed and documented policies for making appointments to the scheme. These should be reviewed at least every three years, and before commencing any procurement or appointment process.
   2. Consider running a tender process when appointing advisers and service providers, and commit enough time and resources.
   3. Carefully consider any proposed degree of delegation, as well as the experience and skill set of the chosen service provider.
   4. Be familiar with and understand the impact of the terms and conditions of contracts with service providers (see our Scheme management skills guidance).
   5. Review relevant independent frameworks, such as ISO certification or accreditation frameworks for specialist functions like administration.
   6. Assess service providers and carry out due diligence as part of the appointment process.
   7. Clearly set out the roles and responsibilities of service providers and advisers.
7. When appointing advisers and service providers, governing bodies should:
   1. agree appropriate delegations and procedures for referral
   2. agree performance indicators on appointment and secure accountability within the service provider
   3. include a process for managing advisers, recording decisions taken as well as escalation points
   4. ensure the flow of communication with the service provider or adviser, so all parties have the necessary information to make key decisions and to fulfil their assigned roles
   5. take steps to identify and manage conflicts of interest. See Conflicts of interest.
   6. understand the implications of data protection legislation⁴ for any information that will be shared with or handled by service providers
8. When managing advisers and service providers, governing bodies should:
   1. seek to ensure that advisers make you aware of any relevant obligations, professional conduct rules and whistleblowing requirements that they may be obliged to follow
   2. ensure service providers are able to demonstrate that they are fulfilling the requirements of any legal obligation that has been delegated to them
   3. ensure service providers are able to demonstrate that they have adequate internal controls relating to the services they provide. See Internal controls and Assurance reports on internal controls.
   4. regularly assess performance against agreed key performance indicators (KPIs) and service level agreements (SLAs). Record outcomes and ensure all actions are allocated for remedy with progress tracked
   5. review the performance of advisers and service providers against the objectives set for them, including strategic objectives. See our objective setting guidance.
   6. Periodically review the market for relevant service providers and consider if the scheme continues to receive quality service and value for money. This may be part of any value for members assessment run by the scheme.
   7. Have enough knowledge and understanding to enable them to fully understand any advice or information they receive.
   8. Understand how any advice or information they receive affects decisions or activities that they are legally responsible for.
   9. Have a process to ensure that improvements are made where poor service is identified.
   10. Work with service providers to understand and secure any necessary resources to deal with forthcoming legislative or scheme changes.
   11. Have clear documented procedures in place, to allow a continuous and consistent service if the service provider changes or fails. See Scheme continuity planning.
9. There may be circumstances where it is necessary for the governing body to replace an adviser or service provider. This may include cases where service has been consistently poor or no longer demonstrates good value; or where a contract is not or cannot be renewed. In such circumstances, it would be appropriate for the governing body to act to ensure that there is no member detriment from their actions. In replacing advisers and service providers, governing bodies should:
   1. Consider the interests of the scheme members when replacing the adviser or service provider.
   2. Understand the impact of the terms and conditions of contracts, including any fees or penalties, and procedures for releasing relevant information to the governing body and new advisers.
   3. Understand the risks associated with transitioning to a new provider and put plans in place to mitigate them.
   4. Plan effectively for the transition to a new adviser or service provider, setting out the key steps, actions, decisions, owners, and timescales, including how costs will be met.

Glossary

Advisers

In the context of the code of practice, advisers is a broad-reaching term and may refer to one or more of the following: actuary, benefit consultant, lawyer, independent financial adviser, investment consultant, insurance broker, professional trustee, investment manager, fiduciary manager.

Key performance indicator

A quantifiable measure which can be used to evaluate success.

Service level agreements

An agreement between a service provider and governing body setting contractually binding service levels that are to be met by the service provider in providing the service.

Service providers

Any person or body providing services to a pension scheme, including advisers. Examples include insurer, administrator, accountant, and auditor.

Legal references

¹ Section 249A Pensions Act 2004 [Article 226A Pensions (Northern Ireland) Order 2005]

² Section 47 Pensions Act 1995 [Article 47 Pensions (Northern Ireland) Order 1995]

³ Regulation 6A Occupational Pension Schemes (Scheme Administration) Regulations 1996

⁴ Data Protection Act 2018 and UK GDPR

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