Find your fiduciary – optimising pension plans


13 January 2015


Pension plans are often a company’s largest subsidiary, yet finance directors are too busy to concern themselves with the minutiae of different asset classes and fiscal concepts. Palmer & Harvey’s Jon Moxon and Independent Trustee Services’ Carol Perry look at how the role of a fiduciary manager can help executives optimise a scheme’s potential and allow them to focus solely on their core responsibilities.


With such a diverse array of pension products available, you'd be forgiven for thinking that assembling a suitable multi-asset portfolio has never been easier. But braving this convoluted market requires an intricate understanding of financial mechanisms far beyond that of the average trustee. Many pension plans are stagnating, some even suffering, as a result of indecision, naivety and a lack of attention.

On average, there are 253 working days in a calendar year. Spending just ten of these (under 4%) analysing and organising a pension plan boasting over £125 million in assets may seem inattentive, but for Palmer & Harvey group finance director Jon Moxon, the disparity is unavoidable.

"I was once asked by the board executives why I don't monitor the pension plan more closely; my response was simple - 'I've got a business to run'," he says. "For the plan's trustees, trying to manage a portfolio of assets through quarterly meetings is not easy, particularly considering market volatility and the fundamental changes resulting from the economic crisis. A year could've passed by the time we'd worked out what we wanted to change in the plan, reviewed the different asset investments available and gone through the necessary training. That's a long time in the world of finance.

Pensions focus

In March 2008, Moxon was brought in as group finance director of Palmer & Harvey, the UK's largest independent distributor of grocery and consumer products. Having just completed a management buyout, the company had accumulated significant debt; Moxon's first mission was to address the balance sheet, identify opportunities to improve cash flow and tactically invest growth areas. Two years ago, his focus turned to the company's sizeable pension portfolio.

Measured by turnover, Palmer & Harvey is the sixth-largest private firm in the UK; as a company owned by its management employees, its shareholders make up its present and future beneficiaries. Striking a balance between share and pension performance is part of Moxon's predicament, and, as one of five trustees, the onus falls on him to investigate potential assets. Like most finance directors, however, his role consists of far more than managing the pension scheme; reacting to short-term peaks and troughs in the market is an unreasonable expectation.

"I manage the company's debt every day, ideally you want someone doing the same for the pension scheme - £125 million of investments and liabilities is a significant sum after all - but it's hard for a board of trustees to do that," says Moxon. "What we needed was a separate body prepared to focus on the asset mix on a daily basis, working within pre-agreed and approved parameters. We weren't looking to abdicate our fiduciary responsibility, just for a third party to monitor it and do the right things at the right time."

Learning curve

Understanding highly technical investment concepts involves a cumbersome education process; it was enough to sway the trustees into exploring the fiduciary management route. Aided by the Independent Trustee Services (ITS), the Palmer & Harvey trustees got up to speed with the concept, drew up a specification for what they required and invited three organisations to pitch in the competitive tender process.

"Short term, we were interested in a process that we understood and felt comfortable working with. We conducted the presentations in a short space of time to make direct comparison easier. When you're differentiating between people's services, they appear broadly similar at first, but it's quite a technical area and the devil is in the detail," says Moxon. "Even as a finance director, I struggled with some of the concepts to begin with, but it was important to make sure that everyone was comfortable with the decision and understood the complex financial details."

For Carol Perry, director at ITS, this process of guiding trustees through complicated financial theories is one of the biggest challenges for an independent trustee.

"It's a fascinating job; each trustee board I go to has different dynamics and levels of understanding," she says. "We frequently run tenders for all different services, so we know what information people need and we always give them the time to sit with us and ask questions.

"Everyone is capable of getting to the necessary level, but you need to get there the right way," she continues. "I can lead them through the maze, but the actual decision-making process has to come from the whole board; they have to cross the finish line together. Bringing everyone up to speed while not boring those who understood the first time round is the real challenge."

The personal touch

ITS has been Palmer & Harvey's independent trustee for the past six years. When an unsolicited conversation regarding fiduciary management was initiated by an incumbent investment consultant, the board of trustees was encouraged to speak with other potential partners. After analysing the RFPs provided by five investment agencies, two were whittled out of the process and ITS conducted site visits on the remaining three.

"We look for those who have the ability to actually engage with the trustees and are able to explain concepts in layman's terms," says Perry. "They have to be reputable; you can pick up a lot when you actually meet people, it's why the site visit is useful. I know each of the individual trustees personally, and how they deal with new concepts and the level of training that would be required. It's important to make sure there's a good fit - it's not a sausage machine."

No regrets

Though the fundamental structure of the plan hasn't changed, Palmer & Harvey's new fiduciary management partner operates within pre-agreed parameters on a day-to-day basis to take advantage of market divergences. Though it's only been a year since the partnership began, already Moxon has seen significant improvements in its responsiveness and value. Its performance so far, coupled with the comprehensive quarterly reports and monthly flash updates, has left him in no doubt that this was the right move.

"We get a quarterly performance review, which details the decisions taken during that period and assesses what needs to be tweaked with regard to the parameters," he says. "We've reduced the risk to the plan, we've got a target for where we want to be in seven years' time and I now feel that we are being more responsible. In the long term, we just need to ensure the fund is adequately controlled and the right class of assets is there to deliver growth. We are certainly in a much better place than we were before."

Bringing in a new partner has transformed Moxon's role; though he will still spend ten days a year evaluating the plan, he has peace of mind in knowing that reputable financial investors are handling it daily. Now, when asked by board executives about the state of the scheme, he needn't respond so defensively, they can rest assured that it is in safe hands and he can concentrate on the core disciplines of a finance director.

Jon Moxon is group finance director at Palmer & Harvey, which is the UK’s number-one delivered wholesaler, with a large, efficient distribution infrastructure. Its national network of 14 local depots in key locations has a fleet of more than 1,000 vehicles.
Following a diverse career in the financial services industry, Carol Perry joined Independent Trustee Services in 2006. She works mainly with ongoing DB and DC schemes, and is a Fellow of the Pensions Management Institute.