Commenting on the Law Commission’s report ‘Fiduciary duties of investment intermediaries’ just published, Paul Lee, Head of Investment Affairs, NAPF, comments.

“We welcome the clarity and certainty which the Law Commission’s work brings to the area of fiduciary duty. While many pension fund trustees have always had a good grasp of their fiduciary duties to act in scheme members’ broad interests, it is extremely helpful to have the reassurance that trustees should indeed use their judgement as to what is in the beneficiaries’ interests over the appropriate time horizon. In many cases, trustees will decide that this will encompass risks that will go to value over the long-run, including issues such as governance and environmental matters.

“In addition, the Law Commission’s report brings some welcome clarity to the debate concerning fiduciary duties as it applies to intermediaries. As the ultimate decision makers in appointing contract-based workplace pension schemes providers, employers have a responsibility to put in place pension arrangements that offer value for money and act in the scheme members’ best interests. The report presses for clearer duties to be applied to the individual members of independent governance committees (IGCs) to ensure that members’ interests are protected.”

“The Law Commission does not agree with John Kay, whose review suggested that fiduciary duty should not be varied by contractual terms. If the Government takes the Commission’s advice, this means that investment managers working for trust-based schemes will only face a fiduciary obligation to the extent that their contract explicitly requires it. The NAPF anticipates that over time this will lead to a significant reassessment of the contractual mandates between pension schemes and investment managers to ensure that members’ best interests are properly held in mind throughout the investment chain. A NAPF survey earlier this year showed that the top six consultancies account for around 70 percent of the schemes we surveyed, meaning a great deal of influence sits in the hands of a few consultants in the largest consultancies. So it is interesting to note that the Law Commission indicates investment consultants may need to be regulated in the future.”