Aon Hewitt: Fiduciary Fees Must Be More Transparent

(January 22, 2014) — Comparing fiduciary management options has become almost impossible thanks to a lack of transparency around fees and what services are being offered, according to consultant Aon Hewitt.

The retirement specialist, which itself provides fiduciary services to more than 240 pension funds globally, said trustees had expressed their frustrations at not being able to compare apples with apples when considering delegated consulting options.

The lack of homogeny across outsourcing was highlighted by aiCIO in December: there is a serious lack of standardisation across the industry. Far from just confusing investors with a range of names (implemented consulting, fiduciary management, outsourcing), the products that lie behind the labels are an eclectic range of different approaches and delegation levels.

KPMG’s Head of Manager Research Alex Koriath told aiCIO that he expects greater levels of standardisation to occur as the market matures, but for the time being, investors are struggling to compare providers effectively.

This challenge has been acknowledged by Aon Hewitt. “Schemes need greater transparency from providers on what they are actually paying for.” Said Sion Cole, partner at the firm.

“It’s vital for the provider to be transparent about what fees will be charged and for trustees to have a full understanding—before appointing a fiduciary manager—not only of the overall fee being charged but also of its different components. How exactly is it charged? Are the fees ‘bundled’ or ‘unbundled’? Are there any other costs they need to take into consideration?”

Fiduciary management fees can be broken down into four main components, according to the consultant: provider fees, underlying manager fees, investment consultancy fees, and other fees, such as administration, custodian, legal review, or transition management costs.

As part of its push to become a more transparent provider, Aon Hewitt has published a report called Understanding the fees charged within fiduciary management, aimed at helping trustees to understand the topic as well as questioning whether fiduciary fees are actually more expensive than the pension fund’s existing approaches.

“It very much depends on the scheme’s current starting point and where they are looking to get to. In some cases fiduciary management can be more expensive but the extra costs should be weighed against the additional benefits of the approach,” said Cole.

“In other instances, moving to a fiduciary management approach can actually be cheaper—without even considering the added value it offers.”