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Author: Jonathan Kerr

The importance of independence of a Master Trust from an investment manager.

The introduction of new governance under IORPII and the costs associated with this, have brought renewed interest in Master Trusts as a way of managing all requirements through a packaged solution. While there are only 8 Master Trusts in Ireland, there are some very large differences in how this small group are managed. Below I examine why independence from the Investment Manager is so important in delivering a better Master Trust and why you should have this as being a key consideration when choosing a provider. 

Independence has 5 main benefits for the Master Trust and its customers.

  1. Performance

    Master Trust providers that utilize an in-house investment manager are conflicted and are very unlikely to replace their investment manager should it not perform. If you are an employer who has engaged a Master Trust and subsequently the performance dips, you may have no other option but to change Master Trust to address poor performance, which would have significant cost and member communication implications.

  2. Best Ideas

    As Albert Einstein once said, “the true sign of intelligence is not knowledge but imagination”. While all investment managers have their strengths and knowledge, they are not specialists in all areas and do not have the skillset for every type of investment. With a truly independent investment advisor in a Master Trust, the Master Trust can build and refine the ideal investment strategy, utilizing best-in-class investment managers to make the best ideas an accessible reality. 

  3. Cost

    Costs can have a significant drag on performance for members and one advantage of having a truly independent investment manager is that cost savings can be achieved through competitively tendering appointments of investment managers to ensure value for money continues to be achieved. This means that you are not locked into an uncompetitive investment manager. 

  4. Transparency
    Master Trusts tied to their investment manager will sometimes combine the cost of investment management and the management of the Master-Trust into one all-inclusive fund management fee. While this might appear at first glance to be a very transparent fee structure, it does mean that any cost savings that are attained will not necessarily be passed onto members. This is particularly an issue when Master Trusts grow to a significant scale and are able to utilise economies of scale for lower fees. It is possible that cost savings gained could be used to gain market share and offer better terms to new customers. 

  5. Appointment and removal

    Providers that can independently appoint and remove investment managers can not only change to better managers but they can also change when fundamental issues occur with leadership teams, solvency, liquidity, etc. In addition, where a provider has a choice of their own funds or alternative managers’ funds, there would be a risk that they appoint their own fund because of the financial incentive to keep it in-house. 

We believe that within LifeSight Master Trust a critical part of our outperformance compared to our peers is our independence, where we bring you our best ideas in a cost effective and fully transparent way.