Arm yourself with knowledge

At the start of this year, I became an independent trustee. I now work with company pension schemes, to use my experience from asset management to (hopefully) help pension scheme trustee boards work more effectively for the benefit of scheme members.

I believe an experienced independent trustee has much to offer by improving governance, ensuring transparency and catalysing effective decision-making.

Most trustees I have talked to agree, desperately wanting somebody on their side to help them digest the wealth of material third parties throw at them. To my surprise, however, one trustee disagreed. Indeed, he was rather relaxed about the whole thing, saying: “I just do what my advisers say. No questions.” He simply believed that he was in no position to second-guess the conclusions of specialists with far greater experience, so didn’t bother to try. While I could see his logic, I asked him how he ensured that the advice he received was robust and, therefore, any actions based on it reasonable. He shrugged and said: “Why shouldn’t it be?”

This stance concerned me. When it comes to complex advice on financial matters, there always needs to be some degree of testing. Ostensibly reasonable advice could be flawed in some way; it could be incomplete or biased or based on a fundamental misunderstanding or reflecting an out-of-date situation or covering up a mistake.

An example: a former colleague — we’ll call him Alistair — attended a trustees’ meeting to present some equity fund performance. Alistair made a confident, punchy presentation, proudly telling the trustees that they had enjoyed meaningful outperformance against benchmark since first becoming a client. Alistair believed this to be a successful outcome, more than justifying the active management fees paid. However, despite the bullish message, the trustees looked — well — furious.

The chairman of trustees, flanked by a youthful investment consultant, roared: “You may say that, but as our consultant explained to us before you came in, you’ve lost us a fortune!”

Alistair’s chin hit the floor. He looked on in astonishment as the chairman, rapidly turning a vivid shade of beetroot, waved around a report (clearly marked with the consulting organisation’s logo). “Frankly, sir, you have a nerve!” he thundered. “This report shows you have significantly underperformed your benchmark since appointment. Yet you haven’t even acknowledged this in your presentation.” A gulp of air: “We are therefore looking to replace your firm.”

The chairman wanted to close matters there and then, and readied himself to eject Alistair from the room. But Alistair stood firm and demanded to see the report. The young consultant refused to hand it over. Alistair pushed back hard, refusing to leave without seeing it. The chairman and the consultant huddled up to confer before, grudgingly, the consultant slid it across the table to Alistair who quickly started scanning it. Page upon page of figures and colourful tables and thick jargon-laden text, all building to a coherent recommendation of remedial action. But Alistair noticed the flaw. “These are performance numbers for the manager you fired when you appointed us!” he cried.

The consultant had imported the wrong data and advised on it.

Steve Delo is the president of the Pensions Management Institute and Chief Executive of PAN Governance LLP.