In the financial world, there are short and long term goals. There are also limited and comprehensive responsibilities and authorities that can be assigned and assumed. Unlike fund managers, for example, who have responsibility for the performance of a specific investment vehicle, fiduciary management encompasses oversight of all a client’s assets, not just those involved in a particular venture.
A relatively new concept to financial management concepts, fiduciary management was formally introduced near the start of the 21st century in the Netherlands. United Kingdom pension funds are among the latest users of the fiduciary management technique.
It was developed to allow proper management of increasingly complex interweaving of multiple strategies of investment. Previously, most pension funds invested in stocks, bonds and funds of a limited nature and scope. Today, pension funds can include those standard venues but will also envelope hedge funds, swaps and other methods and tools. The increasing complexity of regulatory restrictions and mandates and the demonstrated volatility of investments have called for specialist tools to appropriately manage business or institutional assets, such as a pension fund.
How It Works
A fiduciary manager, the primary responsible party for oversight, is hired by the asset owner. The manager is responsible for advising the asset owner of strategies and trends and to follow the owner’s orders.
Once a manager is hired, whether an organization or an individual, three sub-managers are usually assigned with unique duties per title. They include
- Asset managers:
These are usually organisations tasked with managing specific asset products, much like a mutual fund manager. These are commercial organisations that traditionally specialise in the management of specific asset management products in specific asset classes. Some of those have evolved to offer a ‘total solution’, including advisory services.
- Pension delivery organisations:
Organisations created by the pension funds by separating in-house teams that focus on providing solutions for the pension fund.
- Investment consultants:
Independent organisations such as AON primarily offer consultancy advice for business pension funds. They usually implement no plan or strategy but merely suggest or warn. Some investment consultant organisations may offer extended services to include taking action, but as of late in 2012, those ‘full service’ consultant organisations are the minority.
Fiduciary management may be a new tool in managing pension funds, but its roots lie deep in investment strategies and the need for comprehensive management of complex financial issues. This tool or technique usually applies to institutional or organisational asset management and not to those of an individual or to retail applications.
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Will Vicary writes for a number of businesses on topics such as pension auto enrolment. He enjoys reading about business as much as he enjoys writing about it.