TPR revises guidance on FM tendering and IC objective setting

The Pensions Regulator (TPR) has published revised guidance for trustees on the tendering process for fiduciary managers (FM) and for setting objectives for their investment consultants (IC).

Following the Department for Work and Pensions’ (DWP) publication of legislation that will take forward the recommendations set out in the Competition and Markets Authority’s (CMA) final order, TPR will take over the regulation of trustee duties from the CMA.

The DWP’s legislation is set to come into force from 1 October 2022, with TPR to take over monitoring compliance with these requirements from that date.

The government’s regulations will broadly replicate the CMA order that trustees have been complying with since December 2019.

TPR’s guidance on tendering for fiduciary management services includes direction on understanding legal duties, reviewing FM submissions, using third party evaluators and the potential conflicts of interest.

In its guidance on setting objectives for ICs, the regulator outlined the key differences between the government regulations and the CMA order.

The primary change identified was the transfer of the regulation of obligations from the CMA to TPR, with trustees now being subject to TPR compliance and monitoring processes.

Furthermore, the requirement to set IC objectives will now apply where the scheme’s principal or controlling employer is themselves a provider of investment consultancy services to the scheme, and where the scheme is a defined contribution (DC) master trust and its scheme strategist or funder is a firm that offers both investment consultancy services and fiduciary management services to the trustee.

Additionally, trustees of relevant trust schemes will be required to review the performance of their IC provider against the objectives at least every 12 months and if appropriate, revise the IC provider’s objectives at least every three years and without delay after a significant change in investment policy.

TPR encouraged trustees to set objectives even where legal requirements may not apply, with the guidance aiming to provide practical information and key matters to consider when setting objectives for their provider of investment consultancy services and when deciding on the services they want to obtain from their IC.

The guidance also includes direction on understanding legal duties, documenting compliance and objectives for investment consultancy services.

Commenting on the publication of the guidance, TPR executive director of regulatory policy, David Fairs, said: “Robust monitoring of a scheme’s financial advisers can influence the effectiveness of its investment outcomes and ensure it is following long-term plans. It also helps trustees ensure they are delivering value for money for savers.

“Since trustees have been required to comply with these obligations and to self-certify their compliance to the CMA for two years, the introduction of these regulations should not place an additional burden on schemes.”

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