Roundtable Discussions on Reclaiming Fiduciary Duty Balance Initiated with Workshop at World Bank

Work of the NSFM Fiduciary Duty Working Group has grown into a series of fiduciary duty roundtables being co-sponsored with the University of Toronto's Rotman International Centre for Pension Management (ICPM). These roundtables focus on key challenges for improving the effectiveness of fiduciaries which were highlighted in an International Journal of Pension Management article by NSFM participants, James Hawley, Keith Johnson and Ed Waitzer [http://ssrn.com/abstract=1935068].

 

The first roundtable was hosted last year by the World Bank at their headquarters in Washington DC.  The roundtable included academics, pension advisors and fiduciaries at large pension funds around the world.  Small break-out group discussions of 21st century fiduciary challenges generated the following recommendations for improved practices in three areas:

 

•           Better pension fund governance practices:  Participants highlighted the need for greater attention to good governance practices and board membership, including stakeholder representation, appropriate mix of skills, understanding of board dynamics and board member training; better allocation of board agenda time and meeting resources to reflect the priority of board responsibilities; consistency of organizational design with fiduciary obligations and mission; selection of advisors that have aligned interests and diverse skill sets, including the capacity to address long-term risk, return and inter-generational impartiality issues; and attention to pension plan sustainability.

 

•           Prioritizing fiduciary duties of loyalty and impartiality:  Discussions focused on improved management of conflicts of interest, both within the pension plan and in the chain of service providers, including elimination of unnecessary layers of agency risk and costs by improving both internal resources and collaboration with other asset owners; creation of service provider succession plans to avoid over-reliance on individual providers and transition away from providers with troublesome conflicts of interest; facilitating consultations with plan participants and beneficiaries who represent different fund member interest groups, especially young and old participants, to help "make fund members real;" and incorporating both images and narratives involving fund members and the pension mission into all aspects of management in order to reduce misplaced loyalty to the management organization.

 

•           Alignment of investment and risk management practices:  Prioritization of attempts to "make fund members real" spilled over into talk about alignment of investment and risk management practices with a balanced commitment to the full range of fiduciary obligations to fund members, including prioritization of efforts to identify and manage behavioral biases in the investment management process; improving consideration of links between liabilities, long-term risks and investment management; balancing liquidity and income generation with long-term capital growth; adopting an enterprise risk management approach that includes a look at risks outside traditional market benchmarks; incorporating mechanisms to counteract the tendency to increase market volatility and misallocation of capital associated with excessive investor "herding" around the same strategies; and including both pension fund sustainability and intergenerational equity in risk management practices.

 

Additional fiduciary roundtables are being organized, including events in London, Amsterdam, Toronto, Boston, Rio de Janiero and Melbourne.  The collective wisdom of participants at these roundtables will be shared in future ICPM and NSFM reports.  The end goals of the initiative are to facilitate identification of practical initiatives that fiduciaries can put into practice and to generate peer support for improved pension management practices which are fully aligned with fiduciary duties.

 

For further information on the forthcoming roundtables please contact NSFM's Coordinator, Charlotte Steel - Charlotte[at]sustainablefinancialmarkets.net