UK - The Pensions Regulator's (TPR) final trustee guidance on conflicts of interest places more emphasis on education and support than in offering "real conclusions" on difficult issues such as the disclosure of confidential information, Sacker & Partners has claimed.

Following a three-month consultation, which started in February, TPR has published the final guidance based around five 'high-level principles' designed to assist trustees in implementing conflict management arrangements. These five principles are:

•    Understanding the importance of conflicts of interest
•    Identifying conflicts of interest
•    Evaluation, management or avoidance of conflicts
•    Managing adviser conflicts
•    Conflicts of interest policy

The five principles remain unchanged from the original consultation document, along with a list of actions that trustees should implement when looking at conflicts of interest, including the requirement for trustees to obtain independent legal advice where necessary - particularly where a conflict is "non-trivial" and could have the "potential to be detrimental to the conduct or decisions taken by the trustees".

But Peter Docking, partner at law firm Sacker & Partners, said although the final guidance "bears a striking resemblance to the original consultation draft", the overall tone of the document is "less categorical".

For example, he said the new guidance suggests a "softening" by TPR in its stance on areas such as the risk of having trustees on the board that also hold senior positions with the sponsoring employer.

In addition, the section relating to confidential information highlights the potential use of confidentiality agreements, but then warns these "do not necessarily deal with the conflict itself. They only allow disclosure of the relevant information. There may still be a need to manage the conflict".
 
Docking said: "With its emphasis on education and support, the guidance perhaps stops short of offering any real conclusions on thorny issues such as disclosure of confidential information.  Not surprisingly, given the complexities of the law relating to conflicts, the Regulator still points trustees in the direction of legal advice in any number of places."

The Investment Management Association (IMA) supported the view of the guidance that trustees should require the same level of conflict disclosure from external consultants as they receive from regulated asset managers.

It also suggested the proposal that external consultants should disclose any conflicts proactively, rather than wait for a request from trustees, would help "better protect both trustees and the beneficiaries of their schemes".

The IMA pointed out consultants to pension schemes can fulfil various roles, including offering fund management services, but warned consultants offering both fiduciary and commercial services have an obvious potential conflict of interest, particularly where it advises on fund manager selection and monitoring but also promote their own fund management services.

Richard Saunders, chief executive at the IMA, said: "Up until now, there has been no regulatory oversight of how consultants to pension fund trustees recognise, manage and disclose conflicts of interest. It is therefore most welcome that TPR has introduced guidance which will promote greater transparency and so ensure pension funds are better served by all their advisers."

Doug Naismith, managing director of UK Institutional Business at Fidelity International, agreed the role of adviser and provider has the potential to be "less clear".

He said: "In some cases the parties involved do not always realise that there is a conflict issue.  Parity of disclosure requirements for both asset managers and consultants will eliminate this issue and thereby safeguard the interests of millions of pensioners in occupational schemes in the UK."

Chris Dobson, executive director of TPR, said the management of conflicts is key to good scheme governance, and highlighted that while many schemes have "robust procedures" evidence suggests there are aspects of conflict management "where further attention is required".

"Disclosure of conflicts should be embraced, not ignored, and we expect all conflicts of interest to be resolved sensibly. Where a conflict comes to the attention of the regulator, we may take action where appropriate", added Dobson.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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