News and Views

Jonathan Reynolds takes part in Professional Trusteeship Roundtable

by Neil McPherson, Managing Director

Jonathan Reynolds recently took part in a Professional Pensions roundtable discussing how Professional Trustees are meeting the challenge of a new decade.

The article can be accessed by this link and is also reproduced below.

Jonathan Stapleton speaks to eight senior professional trustees about accreditation, diversity and the issues they face in their roles.

Professional trusteeship has changed markedly over the past 20 years – growing from what has been described as a “cottage industry” at the turn of the millennium to a significant business area today. A large proportion of schemes now have at least one professional trustee on their board, with the number of schemes using sole trusteeships also growing.

Yet, as professional trusteeship has grown, so has the level of scrutiny from The Pensions Regulator (TPR), which has become increasingly focused on clamping down on sub-standard trustees.

In 2016, the regulator launched a discussion on 21st century trusteeship – finding there was a broad consensus across the industry that good governance was key to ensuring positive outcomes for savers and recognising that, while there were a great deal of good governance practices in the occupational pension sector, there were sections of the industry that were not performing as well as others.

Among other things, this work led to the establishment of the Professional Trustee Standards Working Group (PTSWG) in 2017, a body formed to establish a set of standards for professional trustees and an accreditation system to demonstrate they were meeting these standards.
Such accreditation would, it was hoped, set a minimum bar for professional trustees and benchmark standards.

Two accreditation regimes have now been announced – with the Pensions Management Institute and the Association of Professional Pension Trustees each running processes to test trustees against the PTSWG standards.

But the regulator has also been looking at other areas affecting professional trustees. In its consultation into the future of trusteeship and governance, published last July, the watchdog asked if there should be an accredited professional trustee on every board, whether sole trustees can run pension schemes appropriately, and how diversity on boards can be improved.

The regulator’s response to feedback from this consultation, published on 10 February, was muted – with TPR deciding not to, at the moment, mandate the use of professional trustees on scheme boards or introduce additional rules around sole trusteeship.

TPR executive director of regulatory policy, analysis and advice David Fairs explained: “We have listened carefully to what the industry has told us, and we are not at this stage going to introduce new measures in areas such as sole trusteeship and adding a professional trustee to boards. However, we will continue to closely to monitor standards to ensure expectations for scheme governance are met.”

It is against this backdrop that Professional Pensions convened a panel of senior professional trustees in January, asking them their views on the challenges they face, the future of accreditation, diversity and sole trusteeship.

This is what they had to say:

Who’s who

Naomi L’Estrange: Managing director, 20-20 Trustees
L’Estrange joined 20-20 in 2014 after 19 years working as a pension lawyer and working at the PPF

Colin Richardson: Client director, PTL
Richardson joined PTL in March 2014 having previously spent 25 years in consulting. He acts as trustee on a number of DB and DC schemes

Adrian Kennett: Director, Dalriada Trustees
Kennett is head of Dalriada’s ongoing trusteeship practice. He sits on the board and chairs several schemes

Kevin Clark: Client director, PSGS
Clark manages client relationships at PSGS and has acted in professional trustee and secretary roles for over 25 years

Jonathan Reynolds: Professional trustee, Capital Cranfield
Reynolds, a former partner at RSM, has worked with Capital Cranfield since 2013 on several schemes

Shehzad Ahmad: Trustee director, Ross Trustees
Ahmad has been a trustee since 2005. During his career he has acted for a range of schemes and has worked at the PPF

Julie Stothard: Chief executive, BESTrustees
Julie has been CEO at BESTrustees since September 2019. She is a qualified actuary with 25 years’ of industry experience

Steve Delo: Managing director, PAN Trustees
Delo has co-led PAN Trustees since 2008. He is a former PMI president and chairs a number of prominent schemes

What do you see as the biggest challenges facing professional trustees?

Naomi L’Estrange: The oversight of governance is ramping up very significantly and the standards that we have to live to are increasing. We have to manage that. But, from a broader perspective, the profession has to decide what it is – it has moved on from just being a series of individuals but I think the idea of what it means to be a professional trustee is only really starting to emerge now.

Adrian Kennett: Over the past ten years professional trusteeship has morphed into being a career and a full-time study, previously it had not always been perceived to be that.

Steve Delo: I agree. Professional trusteeship grew up as a bit of a cottage industry and has now become a serious one. On the whole, I believe professional trusteeship has been a real force for good – it has made a lot of schemes better – but there is a danger of being overly structured with how these things work going forward, which actually could be damaging. So we need to be careful. There is some need to further professionalise but it needs to be proportionate.

Julie Stothard: I agree it needs to be proportionate, but there are things we can learn from other professions, both good and bad, and I am very supportive of moving to accreditation but I think we need to be careful not to go too far and become overregulated.

Shehzad Ahmad: The term ‘professional trustee’ sums it up. It’s become more professionalised over the years. But I agree, we don’t want to overregulate. I think accreditation is overdue, but the challenge is how we make sure regulation remains proportionate, relevant, and fit for purpose.

Kevin Clark: Capacity is also a challenge. Most, if not all, of the enquiries we’re having are for first-time professional trustee appointments and the number is increasing significantly. We will need capacity to deal with this increase in demand and to keep up the quality of qualified professional trustees as the industry expands.

Colin Richardson: There is also a challenge for professional trustees around the high and increasing volume of regulatory requirements and managing the volume of governance a scheme needs. There is a real volume issue, particularly for smaller schemes.
What have your firms been doing to prepare for accreditation?

Jonathan Reynolds: The reality is most firms are pretty good at their internal governance already – I don’t think it’s a massive sea-change for us. The thing that has changed is there is now more of a framework.

Adrian Kennett: I agree. Accreditation is not a massive hurdle for a professional trustee. But the whole framework is about a journey rather than a destination – we’ve never had anything before and you can’t move to a million miles an hour overnight; you’ve got to start taking the right steps in the right direction and that is how the framework should be viewed.

Steve Delo: You’ve got to be careful you don’t actually lower the bar by putting a bar in. This is what worries me about this – if we say accreditation is all that needs to be done, we may effectively lower the bar. It has to be progressive.

Shehzad Ahmad: But you do need the bar in the first place or there are no barriers to entry to trusteeship – that is important as well. I agree we mustn’t level it down but, as Adrian says, you can’t start right at the top; you have to work your way up.

Steve Delo: The challenge is whether these barriers to entry worry those who aren’t up to the job. There aren’t any natural barriers to professional trusteeship and you need to make sure those doing it are sufficiently competent and skilful. Accreditation won’t necessarily solve this problem.

Shehzad Ahmad: We’re worried about the rogue trustee – that’s what we hear the regulator is concerned about also. There has to be some sort of screen in place and, while levelling down isn’t the answer, something does need to be in place and we have to start somewhere.

Naomi L’Estrange: I see accreditation as a stepping stone to compulsory professional trustees. But you can’t even think about doing that until you’ve got an actual measure of what a professional trustee is. That’s what I think accreditation is really about.

Are you setting a much higher bar for the professional trustees in your firms?

Steve Delo: Everyone is raising the bar because you need to have good people. There are a lot of trustee firms out there and a lot of business about, but it’s competitive and we want to be fielding good people with the right skillset. This need is naturally pushing everything up.

Shehzad Ahmad: Adrian’s point about professional trusteeship now being a career is very valid because you don’t want just attract professionals who, after a certain career path or age, want to go into trusteeship. You need to get away from groupthink, expand who you’re hiring, and look at hiring from different backgrounds. I’m not from a pensions background but, while you can teach pensions, you can’t teach some of the soft skills or hard skills you need in trusteeship – and some people have those skills working in different industries. If we can train them up to have the technical expertise, you’ve got the best of both worlds.

Is trusteeship something that can be a graduate career?

Colin Richardson: Potentially but it is not a natural model – experience has a value and there’s a danger of undervaluing that. And that applies to both the knowledge of subject matter and soft skills. When we were all graduates, we all didn’t have the soft skills of years of office experience and seeing lots of meetings and so on. As such, the period you might need to prepare before taking on the lead role could be a fairly lengthy one – I’m not sure all our business models easily suit the idea of having people who are there for learning rather than for doing. Also, the defined benefit (DB) market is mature and defined contribution (DC) consolidating – so there would be a lot of questions for the candidates about the longevity of this career. But it might be possible; there could be a model.

Naomi L’Estrange: We are offering something like that. We have effectively four different levels of roles within our organisation. People can come in at the junior trustee consultant level and I have conversations with those who would ultimately like to become trustees and those who would prefer back office roles. And we have had promotions through all the levels within our organisation, up from trustee consultant to associate director. But there is a big ‘grey hair’ problem – and it’s no wonder you’ve got an incredibly non-diverse board when the first question on every request for proposal (RFP) is ‘how long have you been a trustee?’ By definition you are fishing in the same pool of white, middle class men, who are largely 65 or over.

Adrian Kennett: We recruit graduates, train them up, put them through the team and we are therefore able to put someone forward who is highly competent, highly experienced, in their late 30s and early 40s. It has been an issue that people haven’t been appointed because they are not old enough. But they may have more experience than the next candidate.

They work their way through the multiple disciplines of the team. They’re going through meeting prep, they’re going through actuarial assistance, they’re going through admin assistance, they’re learning under the wings of a director, taken along to meetings and given that exposure and that experience.

That also gives you multiple charge-out rates so you can get someone at a much lower rate doing things that you don’t need a director to do.

Shehzad Ahmad: If you have got a diverse organisation, they’ll have different age profiles, backgrounds and experiences. I became a trustee at 25; that’s really unusual. But seeing a demographic change in trusteeship is really important, and the reason I think it is changing is because chief financial officers and corporate boards are getting younger as well and they’re recognising and relating to people with different backgrounds and ages. The industry will naturally adjust to the people it is meeting on the corporate side.

Kevin Clark: We offer a scheme secretarial service that gives more junior colleagues this experience – they will be sitting with one of our trustees or external trustees so that they get experience of sitting in trustee meetings, get used to different trustee models and so on. And they will be the next generation of trustees. It depends how long pension schemes run for as to whether it’s really a career. But if you widen it to governance more broadly, then it is.

Should there be term limits for professional trustees?

Julie Stothard: I expect these will be introduced at some point.

Adrian Kennett: Under the master trust regime you become an affiliated trustee if you are re-elected to stay on beyond ten years. That seems a reasonably sensible starting point for me.

Shehzad Ahmad: Transparency is important. There could be some thoughts around rotation, such as in the audit world. If, for instance, a trustee board has the same professional trustee firm for a period of time, they could rotate the person nominated as trustee and get slightly different thinking in there. There are models out there we could look at.

Colin Richardson: Five years would be quite restrictive, so I think it needs to be a bit higher. I would prefer some form of guide where exceptions can be made – if, for instance, you have a scheme that’s going through its journey plan and the term limit comes when it’s getting very close to wind-up, there could be reasons why it’s not sensible to make a change. Some form of flexibility is needed. But many firms are moving to a point where it is normal to rotate individuals holding an appointment rather than having the same individual forever. A fresh pair of eyes can be a good thing.

Should there be a limit to the number of trustee appointments that any one person should have?

Colin Richardson: Each person has a limit on what they can do but that should be self-regulating. Professional trustees should be required to make sure they are competent to do what they are doing but there shouldn’t be formal rules.

Julie Stothard: The actuarial profession does look at this for scheme actuaries. When I was renewing my scheme actuary practising certificate, I needed to declare the number of appointments that I had – too few appointments might suggest too little exposure and too many might suggest lack of capacity. I also had to give an attestation that I had the capacity and the support to be able to do the work. This helps to focus the mind.

Steve Delo: And it doesn’t just depend on the number of appointments. You can have 15 small trustee appointments and you’ve still got bags of capacity. You can have 15 massive ones and never be sleeping.

Naomi L’Estrange: The other thing is whether you’re the first person or the second. Do you count the roles where you’re the peer reviewer or not? Or the different team structures that people have to support?

Adrian Kennett: I don’t think you should underestimate the power of reputation here as well. We get referrals as the main source of our business and you get business from doing the job properly. If you take on 250 schemes and you stop doing the job properly, people will know.

Should there be a professional trustee on every scheme board?

Jonathan Reynolds: No. There are plenty of schemes that run perfectly well without a professional trustee. You don’t need a professional trustee to have a competent board that works well.

Steve Delo: You’re right, but there are some boards which believe they’re doing a good job but aren’t. If there’s a professional in there, this can help. I can see the advantages of just prescribing it but, on balance, think it would be a heavy-handed approach.

Adrian Kennett: But if you are going to prescribe it, you can’t say that’s going to happen from tomorrow – it will be much worse because you’re then going to flood the market with less competent trustees. If there is an advantage to it, you need to ask over what timeframe should it be implemented.

Shehzad Ahmad: That’s the first question to ask: is there an advantage? Does it add value? That’s not a yes or no answer – some schemes are perfectly well run; some think they are and they’re actually not. So are we just adding something for the sake of it and causing unnecessary friction? It is a value proposition and has to add value and improve governance.

Julie Stothard: I think a requirement to consider appointing a professional trustee would be helpful.

Naomi L’Estrange: This does already feed into the regulator’s risk assessment, so if you have a scheme where funding is challenging or there are other issues, whether or not you have a professional trustee on the board is the first question the regulator asks, particularly if you’ve got the finance director or HR director as the chair. I think this is going to be an increasing trend, particularly at the larger end where there are still some schemes without professional trustees and I think those will start to disappear. But it shouldn’t be a requirement now – it may get to that point but I think it’s an evolution.

Jonathan Reynolds: Professional trustees can come in and have a very positive effect. I think we just have to be careful; certainly, as a profession, we should not be saying you must have one of us.

Does diversity matter on trustee boards and, if so, why? What are you, as professional trustees, doing about it?

Naomi L’Estrange: It matters hugely. The least diverse room I ever go into is a pension trustee conference. I just think you need different backgrounds in order to enable different thinking. It’s exactly the same as corporate boards – you can’t have everybody being exactly the same.

But it isn’t necessarily about any one characteristic – it’s not just gender, it’s not just age, it’s not just ethnicity. We need to have people from a range of different backgrounds.

Colin Richardson: But the diversity of the board is the board; it’s not the diversity of the professional trustee. Or do we need to be diverse within ourselves?

Steve Delo: As firms we’ve got to present diverse options to clients both to be able to win business but also to have a bit more free thinking within the trustee business itself.

Shehzad Ahmad: Research has shown that diversity improves outcomes and gets away from groupthink. Adding women, adding ethnic minorities, people of different ages; it all adds to diversity of thought. Diversity has to be right for the business and right for the industry as well.

We’re trying to increase diversity – and I think it’s really important – but it may take a bit of time.

Naomi L’Estrange: There are some trustee boards that think a professional chair needs to be a 65-year-old white man. And we do need to challenge that and challenge those RFPs that just ask ‘how long have you been a trustee?’ We absolutely need to question that.

It is often difficult to recruit member-nominated trustees (MNTs) – how do you encourage diversity here?

Naomi L’Estrange: You can change the conversation. We often draft invitations to MNTs, emphasising the risk of the role and talking about the responsibility of the role but if you completely flip it on its head – and start talking about what a person can gain, what they can bring, use active language, and encourage companies to look in different places to approach people – then you can get very different responses. We can encourage that process.

Steve Delo: I’ve got one trustee board at the moment that’s really throwing effort into communication to try to widen the opportunity set. It will be interesting to see how that goes, trying to see if we can get the most diverse board possible. If you’re going to change the mix of a board, you’ve really got to go the extra mile now.

Kevin Clark: The challenge is that this comes against a background where only a minority of schemes are taking on new entrants – meaning the membership is getting older, as those members are the only ones fortunate enough to have a DB scheme.
Do professional trustees have the right model in place with regards to sole trusteeship?

Jonathan Reynolds: Trusteeship as a business is chock full of risk, sole trusteeship in particular, especially if you get a small scheme with lots of problems, you inherit all the past and there’s a huge amount of risk in there.
The people who are taking on sole trusteeships understand that and manage that very, very carefully – I don’t think there’s anything intrinsically wrong with sole trusteeships or any specific problem apart from the fact that I think the regulator perceives there being a risk of them being too employer-friendly.

Colin Richardson: These are isolated cases.

Naomi L’Estrange: The issue is where the problem has arisen it’s more often about a breakdown of the relationship with the previous trustee. Trustees who have been removed by those sponsors are complaining to the regulator and I think that is nearly the only feedback it is getting on sole trusteeship. To my mind, you can get governance right or wrong under any model, and it’s up to the quality of the people in the organisation to get it right.

Jonathan Reynolds: Those acting in sole trustee roles do, however, need a slightly different skillset – however many people are involved on a scheme, they have to make judgements about when they need to consult more widely. They have the added dimension of not having a wider trustee board in place.