Appointing a Professional Trustee – getting it right

So your Trustee Board has agreed with the sponsoring employer the need for some professional help and your thoughts turn to requesting CVs. However, before you hit the send button on the invitations to tender, have you considered whether this is the most effective approach?

A Professional Trustee may bring significant experience and depth of knowledge across a broad spectrum of pension schemes, but it does not necessarily follow that they also possess a broad spectrum of skills.

So, for example, do you need a Professional Trustee with an actuarial background, an accountant/re-structuring expert, an investment specialist, one with legal training, one with much more of a holistic background or do you need a multi-disciplined team approach?

Take a Trustee Board of a small defined benefits (DB) scheme, where the only skill set needed is actuarial. This skill shortage can easily be filled by appointing a fully accredited Professional Trustee, who was previously a pension scheme actuary.

Conversely, take a hybrid scheme, with the defined contribution (DC) section used for auto-enrolment (AE), where the skill shortage is in the governance framework. The scheme also needs to review the DC default fund to introduce an ESG bias before the cyclical re-enrolment date, as well as undertake a member survey and develop effective member communications. Here, the skill set of the actuary-trustee could be struggling. Moreover, where the skill set needed is quite extensive and diverse, is it really possible to cover all of these requirements with the appointment of just one person?

Furthermore, how much Diversity and Inclusion does one person bring to the Trustee Board and the decision-making process?

So, do you then need to appoint two or three Professional Trustees to cover all these requirements?

You could, but the natural solution is to appoint a Professional Trustee firm, which will deploy the appropriate skill set when needed. The Professional Trustee firm will support you with:

• an actuary for your DB valuation,
• a governance expert when reviewing your governance framework, to evidence your effective system of governance and assist with your re-enrolment
• an investment expert to assist with the default fund selection and even the ESG aspects of your DB investment, and
• an expert in member communications.

Does this model cost two or three times as much? No, not at all. You just get the right expert at the right time.

So what is the best approach to appointing a Professional Trustee?

There are three key aspects to a Professional Trustee appointment.

Firstly, determine what your Trustee Board requirements actually are. What skill set is needed? What support is required?

Sometimes a skill shortage is obvious. A Trustee Board effectiveness assessment can help identify where the Trustee Board skill set needs support, which may be in areas you hadn’t previously considered. Trustees are required by law to operate an effective system of governance. If the Trustee Board setting the governance framework isn’t itself effective, how can it evidence that the framework is?

Lots of questions you need to ask

• What help is needed?
• What needs to be done?
• Do you need to appoint a Professional Trustee for a full-time role or do you need specific help on a project; e.g. a valuation, a Fiduciary Management tender exercise or a review of your governance framework?
• Are you considering appointing a Professional Trustee as a Sole Trustee and how important is it for your Professional Trustee to be fully accredited?

All shapes and sizes – but which type fits your requirements?

Not all Trustee Board requirements are the same; not all Professional Trustees are the same.

In addition to clearly understanding your Trustee Board and scheme requirements, the second step in formulating your Professional Trustee selection process is understanding the differences between Professional Trustees. Should you appoint an individual or a Professional Trustee firm?

• Some Professional Trustees are self-employed and can work within a Professional Trustee firm.
• Some Professional Trustees are Sole Traders, employed by their own company.
• Some Professional Trustees are employed by a Professional Trustee firm, supported by a number of colleagues and resources.

More questions you need to ask

• So, what level of support, infrastructure and resources do you need your Professional Trustee to provide?
• Which model is likely to have the most robust cyber security?
• Which is a signatory to the UNPRI (for your ESG support)?
• Which can provide the appropriate Diversity and Inclusion for effective decision making?
• Which have successfully completed audits under the Institute of Chartered Accountants in England and Wales Accounting Assurance Framework (“AAF”)?
• Which have won industry awards?
• Which is an Insight Partner to the Pensions Management Institute and which is an active industry participant, helping to develop the pensions industry?

These are points which will help you frame your approach to the appointment of your Professional Trustee.

Operating basis / Fee structure

Thirdly, what is the optimal remuneration structure for your Professional Trustee, in order to support your scheme and Trustee Board?

Would it be more advantageous for you to appoint a Professional Trustee on a fixed fee basis for a core set of services or would it be beneficial to appoint on an hourly charge basis, to cover any eventualities?

Most Professional Trustees will set out a fixed fee for core services but, to compare, you will firstly need to ensure that the core services are at least similar, before evaluating the proposed fee.

Appointing a Professional Trustee – getting it right

Before spending time looking at CVs that you don’t need, clearly define your requirements, clearly understand the differences in the Professional Trustee models and clearly set out your preferred fee structure.

This will go a long way to helping you find the optimal Professional Trustee appointment for your scheme and Trustee Board.