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How to ensure your consultants are not conflicted

Posted by Matt Riley on May 4, 2017 11:53:51 AM

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First published in Pensions Expert, 03 May 2017

http://www.pensions-expert.com/Comment-Analysis/How-to-ensure-your-consultants-are-not-conflicted

Trustees are required to seek specialist advice when running their scheme and in doing so, conflicts of interest are likely to arise. 

Most important though is how these are either handled or mitigated as good governance is an essential part of running a pension scheme. 

There are some crucial points to consider for your scheme when evaluating the role of consultants.

Identify and record risks

One of them is identifying risks. Prepare a protocol to help identify risks and check that your policy specifically considers consultant conflicts, such as instances where the individual (or their firm) also advises the company. If this is not done, the independence of the advice could be called into question later. Advisers may well be conflicted, but this should not stop you from working with them. The trick is to identify and manage the conflict and mitigate your exposure.Make sure you record the range of risks facing the scheme that have been identified. A conflicts of interest register should be maintained recording the conflict and how it is being mitigated. When looking to appoint a new adviser, trustees should ask prospective advisers whether they have any existing conflicts or anticipate any in the future. Most advisers will be used to undertaking these checks, so this should not be a major problem.

Manage conflicts

If you find yourself with a potential risk, consider whether there are ways in which this could be mitigated. It might be that an independent trustee could help provide a level of impartiality and expertise to the process to help mitigate the risk.

An alternative is for the consultant to operate 'Chinese walls', where they would use a different team within their organisation to mitigate the risks. If a conflict is not straightforward, consider seeking guidance either from an independent trustee or the scheme’s legal adviser.

When it comes to sharing advisers with the sponsoring employer, while this is acceptable in the majority of circumstances, trustees should be aware that there are times - such as during funding negotiations - where using the same adviser as the sponsoring employer brings into question the level of independence of the advice that is being provided.

To mitigate this, ensure that your advisers outline their interests on a regular basis. In addition, your scheme rules may specifically stipulate occasions where an adviser can provide advice to both the trustees and the sponsoring employer. Review your scheme rules to see if there are any such situations with your scheme. Advisers often approach trustee boards with new initiatives or funds. At this point, it is important to understand whether there are any commercial relationship between the adviser and the provider of the new initiative. If the trustees are aware of any such arrangements at the start, this can avoid a difficult conversation later in the relationship.

Request information

Generally speaking, it is very likely that your advisers will have their own protocols in place for managing conflicts of interest. Consider requesting the latest procedures from your advisers to help determine what processes they have in place, and add a review of these protocols on an annual basis to your business plan.How can schemes ensure they get impartial advice? Although not exclusively, most pension scheme trustees are still lay trustees. They rely heavily on their advisers when it comes to fundamental decisions about their schemes, particularly investments.

Your scheme actuary should provide you with a written conflicts management plan. If this has not been updated for some time it might be worth requesting an update from your actuary.

Make sure that you are in regular contact (at least once a year) with each of your advisers. While some advisers have a legal obligation to declare interests as soon as they arise, by regularly monitoring advisers, the risk of an unknown conflict of interest arising is lessened.Trustees can find guidance on conflicts of interest from the Pensions Regulator, which has issued a code of practice covering this area.

Advisers may well be conflicted, but this should not stop you from working with them. The trick is to identify and manage the conflict and mitigate your exposure.

 

By Matt Riley, Manager

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Topics: pensions pensionconsultants

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