Instead, unprecedented volatility and insecurity confirmed impressions of this century as an era of acute investment uncertainty. Add increased complexity brought about by changing regulations and accounting rules, and there seem more than enough reasons for enhanced risk management and governance services, such as those provided by fiduciary management.

Fiduciary management involves outsourcing the daily management of a pension scheme to an external partner with a high degree of transparency so that any decisions can be scrutinized, while control is retained by the trustee board.

Services provided can include everything from asset management, administration, risk management, actuarial services to distribution. The approach was pioneered during the past decade in the Netherlands, one of the world’s most sophisticated pension markets, but it is only now being slowly adopted in other countries.

A survey released by Allianz Global Investors in the first half of 2011 explored the demand for and issues facing fiduciary management services in four European markets: the Netherlands, plus the United Kingdom, Switzerland and Germany, where fiduciary management is in the early stages of adoption. Together, these four countries make up 86.6 % of the pension assets in western Europe (download the paper from PROJECT M research).

The survey, conducted with the market intelligence agency Spence Johnson and involving in-depth interviews with 28 senior-level representatives of both corporates and pension plan providers, revealed that pension funds and companies running pension plans see major challenges in the increasingly volatile and insecure financial environment. Only eight themes emerged from the unprompted responses with “Regulatory pressures” and “Low interest rates” topping the list.

Other challenges identified were: “Underfunding,” “Poor returns from investments,” “Meeting the pension promise,” “Pension Governance” and “Longevity.” “Education,” in the sense of increasing the expertise of trustee boards, also appears on the list but is seen as a challenge mainly in the United Kingdom and the Netherlands.

A similar list emerged from a 2009 survey conducted by Allianz Global Investors on the shift of pension plan arrangements from defined benefit to defined contribution. Insufficient funding, reduction of investment and longevity risk, and accounting standards were all cited as drivers in the shift or challenges ahead (Defining the Direction of Defined Contribution in Europe, Allianz Global Investors, 4/2009). Many respondents of the most recent survey said they believed the challenges would remain the same over the next two years.

THIS SURVEY ALSO REVEALED that although issues are similar across countries, the results between countries differ substantially. The root differences are regulations and pension plan design. For example, regulatory pressure is an important challenge in all countries except for Switzerland. Swiss respondents are unique in that they see their main challenges more around performance issues to meet pension promises.

In comparison, Dutch respondents mention challenges relating to management and governance (education, growth in complexity), while the UK emphasizes governance issues besides performance goals. In Germany, two distinctly different challenges top the list. German respondents feel that significant resources are consumed by administration and that it is a challenge to harmonize plans.

In terms of fiduciary management, or integrated solutions as it is sometimes called, the survey shows that its top attraction is efficient access to best-in-class managers (‘Best in class’). “Reduced complexity,” meaning clients appreciate a close partnership to reduce complexity through education and delegation where appropriate, is another attraction high on the list.

Risk management is an important driver in the take-up of fiduciary management. Market turmoil further highlights the importance of comprehensive and in-depth risk management, but funds often lack the resources to handle the complexities involved.

Distinct country differences were recorded in this question. Swiss and German respondents were less concerned with the need for risk management, while UK respondents did not put “best-in-class” managers at the top of the list. For them “reduced complexity,” “risk management” and “dynamic asset allocation” are the top issues where demand for fiduciary offerings might be generated.