What do FDs think of trustees – the good the bad and the ugly part 1

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So what do FDs think of trustees?

Well it was certainly no easy task but we managed to pin down 261 in our first ever FD survey and gather consensus on their views of the decision-making practices of defined benefit trustees. We’ve previously surveyed trustees on the same topic and I’m going to compare and contrast our most recent trustee survey with results of the FD one to make the analysis more informative.

In this, my first blog of the series, I’ll cover the good – or those areas where there was strong alignment in views between these two parties. The second blog will cover the bad – those areas which now require much work to be done but at least there is agreement in opinion as to what needs to be done. In my third blog, I will cover the ugly – those areas where there is currently no agreement.

So what do over 260 FDs and 300 trustees agree on?

The GOOD – strong alignment of views

Good 1:
Well they’re united in their belief that poor governance can blight their plans. Some 97% of FDs believe there is a cost associated with poor governance, while 93% of trustees say poor governance is costly. For those respondents that believe there is a cost, Exhibit 1 breaks this down.

Exhibit 1: Costs associated with poor governance

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Source: FD survey- The Governance Gap – Implementation Matters

How costly exactly? Again FDs and trustees are largely in agreement. When asked to translate this into a monetary cost, some 37% of FDs and 31% of trustees cited an annual cost of more than 1% of assets per year. This is of particular importance in the current low return environment. The above would suggest that FDs and trustees believe that good governance is worth paying for…….and indeed you’ll see evidence of this in my next blog.

Good 2:

Well, the vast majority of plans have done the investment strategy spadework to position themselves for the successful execution of their plans. Some 83% of FDs say their plans have a formal investment strategy in place to achieve their goals and to deal with the risks associated with the plan. In general, the majority of FDs are confident about the strategy that has been designed for their DB plans. There is strong alignment between FDs and trustees.

Given that there is agreement that the strategy issues have largely been resolved, in my next blog we will look at the “bad” – the greatest governance gap now lies in the efficient implementation of the long term solution. In my last blog we’ll look at “the ugly and the un-agreed-upon”.

To read the full FD survey please click here

Sital Cheema-Associate Director, Client Strategy & Research EMEA

Sital-Cheema

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