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Choose an investment governance model

This guide helps trustees understand matters they should consider when deciding whether to use fiduciary management or other investment governance models.


Purpose of this guidance

This guidance was initially produced as part of our response to the Competition and Markets Authority’s Investment Consultancy and Fiduciary Management Market Investigation Order 2019 (the CMA order). The Department for Work and Pensions (DWP) brought certain duties from the CMA order into pensions legislation on 1 October 2022 under The Occupational Pension Schemes (Scheme Administration) Regulations 1996 (the scheme administration regulations).

Choosing an appropriate investment governance model is important to ensure you can make timely investment decisions, access appropriate advice and implement your investment strategy efficiently.

In this guidance we have focused on two models - investment consultancy and full fiduciary management. You should be aware that there is a spectrum of governance structures and levels of delegation between these models, which you can choose from to meet the investment governance needs of your scheme. These alternative structures could include, for example:

  • an implemented or delegated consulting model (this is where the consultant can take and implement certain investment and risk decisions within prescribed boundaries
  • an in-house investment management team (which may invest part or all of the scheme’s assets and which may also provide advice on investments)
  • the use of an investment platform (this is where trustees can access a specific range of researched funds, which are put forward as being suitable to meet their needs)

Even if you expect to choose an alternative model, the approach to choosing an investment governance model, set out in this guidance, should still be helpful to you.

What is investment consultancy?

We discuss the duties required by the scheme administration regulations in our guidance ‘Setting objectives for providers of investment consultancy services’. In relation to those duties, the term ‘investment consultancy services’ has a specific meaning. For the purposes of this guidance, we discuss investment consultancy more generally.

Under the investment consultant advisory governance model, the strategic investment decisions are taken by the trustees following advice from the investment consultant. Day-to-day investment decisions, such as which individual investments to hold, are delegated to the investment managers who have been appointed by the trustees.

Find out more about the range of services that an investment consultant may provide, and the trustees’ duties related to this, in our guidance on setting objectives for providers of investment consultancy services.

This model is often suitable where the investment arrangements are not overly complex, the trustees have sufficient time to make timely investment decisions or the trustees have an investment sub-committee or are supported by an in- house investment team. The model may involve the appointment of more than one investment consultant, as some trustees may feel that different consultants can offer more specialist expertise for aspects of advice they need.

In the table below, we have illustrated the roles and responsibilities of different parties in relation to a number of key investment activities for a scheme with a simple investment advisory governance structure. The allocation of roles and responsibilities can vary significantly between schemes, depending on their governance structure and the resources available to them.

It can be helpful to trustees to complete bespoke analysis for their scheme to understand the allocation of responsibilities and roles in relation to key decisions and actions for their scheme. This can help trustees to assess whether the governance structure they have is appropriate and whether it enables decisions to be made and actions to be taken on a timely basis by appropriate individuals.

Example investment consultancy advisory governance model

This example is not intended to be an exhaustive list of activities conducted by investment consultants or asset managers.

Activities Trustee board Investment consultant Asset manager
1. Investment strategy
Set investment beliefs Responsible Advise -
Set scheme objectives Responsible Advise -
Set strategic asset allocation (SAA) Responsible Advise -
Set allowable investments Responsible Advise Execute
Set hedging and risk targets Responsible Advise Execute
2. Implementation
Implement SAA Responsible Advise Execute
Select managers Responsible Advise -
Investment and risk monitoring Responsible Advise -
Transition assets Responsible Advise -
Advice on investment terms Responsible Advise -
3. Monitoring
Monitor asset performance Responsible Advise -

What is fiduciary management?

Duties related to the appointment of fiduciary managers are discussed in our guidance Tendering for fiduciary management services. In relation to those obligations, the term ‘fiduciary manager’ has a specific meaning. For the purposes of this guidance, we discuss fiduciary management more generally.

Fiduciary management is a form of governance model involving the delegation of investment powers to the chosen fiduciary manager. There are a number of services and levels of delegation available to trustees. Some trustees delegate the management of all of their assets to the fiduciary manager (full fiduciary management), while others may only delegate a part of their portfolio (partial fiduciary management). If trustees do not have the skills, time or governance budget to manage the scheme’s arrangements effectively, they could consider delegating certain investment decisions to a fiduciary manager, which would enable trustees to focus more on the areas that can add the most value to their scheme, such as high level strategic issues. Fiduciary management can sometimes be referred to by other names such as ‘delegated investment consulting’, ‘implemented consulting’ or ‘outsourced chief investment officer (CIO)’. More often these are used to describe variants of the full fiduciary management model but sometimes the terms may be used more generally.

As with all governance models, the trustees ultimately remain responsible for the scheme. This includes setting the overall investment strategy and monitoring the activities and performance of their fiduciary management service provider(s) to ensure they are operating in accordance with the trustees’ legal obligations and are delivering good scheme and member outcomes.

As under the investment consultancy model, the fiduciary manager may provide strategic advice, initially and from time to time. However, under the fiduciary model, initial and ongoing implementation of the mandate is delegated to the fiduciary manager for the scheme assets they have been allocated.

Trustees should be aware that a wide range of governance models can be adopted when either full or partial fiduciary management is implemented, and the model selected should be appropriate for the needs of their own scheme. Trustees should also be aware that under some structures:

  • The fiduciary manager provides all the strategic investment advice (and implementation of that advice). The existing investment consultant or a third party adviser typically helps the trustees to establish the investment beliefs and set scheme objectives as part of the fiduciary manager appointment.
  • The trustees appoint (or retain) a separate strategic investment adviser to work alongside the fiduciary manager (and to provide oversight of the fiduciary manager).

Example full fiduciary management governance model

This example is not intended to be an exhaustive list of activities conducted by fiduciary managers.

Activities Trustee board Fiduciary manager
Set investment beliefs Responsible Advise
Set scheme objectives Responsible Advise
Set strategic asset allocation (SAA) Responsible Advise
Set allowable investments Responsible Execute
Set hedging and risk targets Responsible Execute
Implement SAA Monitor Responsible
Select managers Monitor Responsible
Investment and risk monitoring Monitor Responsible
Transition assets Monitor Responsible
Advice on investment terms - -
Asset performance Responsible Advise
Fiduciary management mandate performance Monitor -

For a scheme which has delegated part of its portfolio of assets under a (partial) fiduciary management governance model the trustees may still require their investment consultant to:

  • continue to provide investment advice on any assets held outside of the fiduciary management mandate
  • provide overall strategic advice for the scheme, and
  • provide oversight on the performance and ongoing suitability of the fiduciary management mandate (where there is any conflict of interest between the investment consultant and the fiduciary manager, the trustees should consider whether they should obtain an independent review)

Key matters to consider before choosing an investment governance model


Once you understand how the different investment governance models operate, you should:

  • assess your current investment governance capability and how it is likely to evolve in the future (for example, when a number of key trustees might retire)
  • define and agree your investment beliefs
  • define and agree your objectives for the scheme
  • consider the extent to which you want to delegate investment decisions to an investment sub-committee or a third party investment or fiduciary management service provider
  • consider whether other options are more desirable, for example appointing a professional trustee, transferring all assets and liabilities into an alternative arrangement and winding up the scheme (DB and DC) or buying out the scheme benefits with an insurer (DB)
  • consider how various governance models might help you deliver your scheme objectives, in line with your investment beliefs
  • consider the extent to which total ongoing costs may vary between investment governance models and the extent to which each approach might add value and/or improve outcomes

Reviewing investment governance capability

A review of your current investment governance capability will help you identify any issues that you need to address and help you to consider which investment governance approach might support you. You may wish to complete an effectiveness review to highlight your strengths and weaknesses. This could be an internal review completed by the trustees or could include the involvement of an external party to provide the trustees with an independent view.

If the trustees feel their current scheme governance structure and circumstances give rise to concern, they should consider the extent to which changes are necessary. This could, for example, include:

  • the appointment of a professional trustee (or an additional professional trustee) with specific skills and experience in relation to investment
  • the creation of an investment sub-committee
  • the review of the extent of delegated authority provided to the investment sub-committee to enable decisions to be made and implemented, and/or
  • the expansion of the trustee board and sub-committee roles, for example by increasing the membership or by increasing the time commitment required to perform those duties
  • simplifying the existing investment arrangements to align better with their governance capability where the simplified arrangements would still enable them to achieve their overall objective for the scheme
  • where trustees are concerned that they may not have the necessary investment expertise or governance capabilities within the board, they may wish to consider delegating those activities to optimise investment outcomes

Find out more about effectiveness reviews in our scheme management skills guidance. While this guidance is intended for trustees of DC schemes, it also contains information which will be useful for trustees of DB schemes.

Key questions to ask when reviewing your governance model

  • Do we have sufficient time to dedicate to investment and risk management?
  • Do we have the resources (eg people, skills, governance budget) to set up an investment sub-committee?
  • Do we need to meet more frequently to make timely decisions?
  • Do we need to react quickly to investment decisions in between meetings?
  • Do we have the relevant knowledge and experience on our board to understand the investment and risk management needs of the scheme? Can we recruit or co-opt people with the required skills?
  • Could the governance be improved by some other changes? For example, by meeting more frequently, by appointing a professional trustee or by introducing an investment platform?
  • What do we need from our investment arrangements and to what extent does that require complexity in the selection and ongoing monitoring of assets?
  • How might things vary in the future (eg after the current trustees retire)? Do we have a succession plan to recruit trustees with the right knowledge and skill set?

Define and agree investment beliefs

As a trustee board, you should establish a set of core investment beliefs as these can help focus and improve the effectiveness of your investment decision-making. These can also help you to set more appropriate objectives for the selection and appointment of your service providers and help you to identify the most appropriate investment governance model for your scheme and trustee board. If, as a board, you do not understand or have enough experience to agree your investment beliefs, you should seek advice from your existing service providers and/or consider appointing an independent third-party adviser, with specific investment experience, who will be able to assist you.

When setting investment beliefs, you should be aware of the potential for bias and conflicts of interest to arise. For example, an investment consultant’s approach to setting beliefs may be influenced by the capability and range of services that their firm offers.

Find out more about investment beliefs, see our DB investment guidance and DC investment guidance.

Define and agree scheme objectives

Your scheme objective(s) will influence which governance model will be most appropriate for your scheme and support the development of your selection criteria for any tender exercise. You should agree and document your scheme objectives.

Please note: The following examples are for illustrative purposes only. When agreeing your objectives, you should consider what is appropriate for the needs of your scheme.

Example objectives

DB scheme considerations DC scheme considerations

The scheme objectives should be based around your duty to pay benefits promised in accordance with your scheme rules as and when they fall due.

They should also be linked to the statutory funding objective which requires that sufficient and appropriate assets are held to cover your scheme’s technical provisions (TPs). 

The scheme objectives should consider how the needs of your members might vary in the period before they begin to access their benefits (the accumulation phase) and in the period when they are accessing their benefits (the decumulation phase).
Examples Examples
  • To meet member benefit payments as they fall due.
  • To reach full funding on the TPs basis by [date].
  • To reach full funding on a low dependency basis by [date].
  • To deliver a return over the liabilities of X% per annum (reducing to Y%
    per annum after N years) within a specified level of risk.
  • To effect a series of insurance company buy-ins of membership tranches on a phased basis as and when market pricing is favourable.
  • To transfer the remaining scheme liabilities to another arrangement or insurance company within N years.
  • To buy out the benefits with an insurance company.
  • To fully integrate consideration of ESG, including climate change factors and broader sustainability issues into the implementation of the scheme’s investment strategy.
  • To provide investment solutions that provide value for members and good member outcomes over the long term.
  • To ensure that the investment strategy structure is based on the membership profile.
  • To establish an investment strategy for the default fund that is suitable for a typical member who does not wish to make their own investment decisions.
  • Within the default fund to generate returns significantly above inflation while members are a long way from retirement and switch gradually into lower risk investments as members near retirement.
  • To establish an investment strategy for the decumulation phase post-retirement, which is suitable for a typical member who does not wish to make their own investment decisions.
  • To enable the investment strategy to be implemented using a wide range of investments, including alternative and illiquid investments to seek to improve member outcomes.
  • To fully integrate consideration of ESG, including climate change factors and broader sustainability issues, into the implementation of the scheme’s default investment strategy.            

Value for money (investment)

The structure of the governance model selected will influence the costs. It is important to consider the total costs of any governance models being considered, including direct investment fees, performance fees, transaction costs and any potential costs that might be incurred in future if a decision was made to exit from the chosen model.

It is also important to understand that “costs”, which may be broadly the same at an aggregate level, may be structured differently. For example, a fiduciary manager might submit a low fee for the core fiduciary management element of the service but include higher fees to cover the costs of the underlying investment management.

Trustees should not consider costs in isolation. The potential value and improvement in outcomes that might be achieved using different governance models should also be considered.

Conflicts of interest

When considering which governance model is appropriate for your scheme, you should be aware of the potential for a wide range of conflicts of interest to arise. The scale of conflicts will vary and may apply to a wide range of parties that might be involved. For example:

  • the existing investment consultant may be linked directly with a firm that offers fiduciary management services or may work within a firm that offers fiduciary management services
  • the existing investment consultant, who has no links with a firm that offers fiduciary management services, but who is retained on an advisory basis, will have a commercial interest in an advisory relationship continuing
  • some third party evaluators will have a commercial interest in trustees choosing fiduciary management to generate business, for example where they offer an ongoing oversight role
  • other third parties will have a commercial interest in assisting with the tender exercise but may not have the necessary knowledge of the fiduciary management and investment consultancy markets within the occupational pension scheme markets to advise appropriately

Conflicts of interest may not always be a barrier to appointments or decisions being made. However, you should ensure that appropriate measures are in place to identify, mitigate and manage those conflicts. 

See Appendix A: Examples of third party evaluators. Find out more about managing conflicts of interest.

Additional factors that may influence the governance model you select

Your scheme circumstances, investment objectives and investment beliefs should influence the governance model that you adopt. The importance of individual factors will vary between schemes and trustees should consider the unique circumstances of their own scheme, their governance structure and how it might evolve.

Factors that might have a significant effect on the decision for some schemes could include, for example, the extent to which the trustees:

  • want to delegate investment decisions
  • believe other options might be more desirable, for example improvements to the trustee board and governance structure
  • are confident in their investment beliefs, for example their belief in the ability of active investment and asset allocation management to add value
  • need to generate a significant level of investment return and/or manage the associated risks in order to restore funding to a level to be able to meet future benefit payments
  • believe the scheme is likely to run on for a period of time (and not transfer to another arrangement)

Case studies

The examples below are for illustrative purposes only. When choosing a governance model, you should consider what is appropriate for the particular circumstances of your scheme.

Scheme A

The trustees believe in passive management and can adopt a low-risk investment strategy. They do not need a very active governance solution and have sufficient time and resources to devote to the scheme’s investments. The trustees concluded that an advisory governance model is more suitable for their scheme.

Scheme B

The trustees need to run a potentially high-risk investment strategy to deliver strong returns, but their knowledge of sophisticated investment and risk management techniques is limited. They believe in active management but do not have the time or resource to select and monitor numerous managers, and their scheme size is prohibitive to achieving suitable diversification and accessing some investment opportunities. Given their existing commitments and trustee board composition, they would not be able to dedicate sufficient time and resource in the foreseeable future to enable the trustee board to actively engage with the investment and risk management arrangements for the scheme.

The trustees therefore conclude that a fiduciary management model could be more suitable in supporting them to meet their primary investment objective (to meet members’ benefits in full as they fall due) in the longer-term and should be investigated.

Scheme C

The trustees of a rapidly growing DC scheme have sufficient knowledge and understanding of investments but are time constrained. They want to focus their attention on improving engagement with members and developing their understanding of their members’ benefit needs to ensure they provide them with an appropriate level of information, support and access to investment fund options during the accumulation and decumulation phases. The trustee board decides to set up an investment sub-committee to work directly with their investment adviser.

Scheme D

The trustees of a DC scheme believe that some active managers can add significant value. The trustees also believe that investment in illiquid assets and tactical and medium-term asset allocation decisions can lead to improved outcomes. However, the scheme does not have sufficient scale to incorporate active fund management within the DC default fund charge cap, and the trustees are not confident of their ability to:

  • consistently identify, select and transition investment managers on a cost- efficient basis to ensure that member outcomes are improved
  • make efficient investment decisions concerning the selection, appointment and monitoring of investments in illiquid and alternative assets
  • make investment decisions on a sufficiently timely basis to enable medium-term asset allocation decisions to add value

The trustees therefore concluded that transferring members to an authorised master trust with the benefit of scale and greater investment governance resource could be more suitable in meeting their objective to improve member outcomes, and with more potential to align with and implement their published investment beliefs.  

Requirement to set objectives for providers of investment services

Whether the governance model you select is advisory, fiduciary or a hybrid of these models, unless exempt, you must set objectives for your providers of investment consultancy services.

See our guidance on setting objectives for providers of investment consultancy services.