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Fair Pensions
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The Report

The Enlightened Shareholder: Clarifying investors' fiduciary duties

ShareAction Report (March 2012)

Full Report


Protecting Our Best Interests: Rediscovering Fiduciary Duty

ShareAction Report (March 2011)

Executive Summary | Full Report | Recommendations


If you are looking for ShareAction's other reports on fiduciary duty, please go here.

New research by ShareAction calls for an ‘enlightened fiduciary' model for institutional investors to parallel the new duties of company directors introduced in 2006. The report argues that such a provision would provide a valuable ‘nudge' towards sustainable, long term investment to overcome narrow interpretations of fiduciary obligation which emphasise profit maximisation at the exclusion of all other factors, including financial system stability.

ShareAction welcomes Ed Davey MP's positive response to our report on fiduciary obligation. Speaking at the launch of ShareAction's new report, Mr Davey said:

"It's very important that fiduciary duties are fully understood by all those who exercise them.

"As a government, we do want to see ESG issues considered in a rounded way in order to encourage responsible investment decisions... Fiduciary duties placed on pension fund trustees can be about more than maximising the bottom line. These duties require pension fund trustees to consider the best interests of the scheme beneficiaries and we want everyone to understand that."

He went on to link the report to the government's current review of economic short-termism:

"The report speaks to a number of policy changes that the government are facing...Pensions savers should have a say in the management of their money."

Speaking after the launch event, Christine Berry, author of the report, said:

"We are very pleased with the government's positive response. We hope that this is an indication of intent from the government when it comes to rediscovering fiduciary obligation to make it fit for purpose in the 21st century."

According to the report, which was funded by the Nuffield Foundation, intense debates about corporate governance since the financial crisis have paid insufficient attention to the underlying savers whom fiduciary obligations exist to protect.

Christine Berry, author of the report, said:

"There's been a lot of talk about the relationship between asset managers and asset owners, but little about the ultimate beneficiaries. There is an urgent need to refocus debate onto the individuals whose money is at stake."

ShareAction, which campaigns for transparency and accountability in finance, argues that current interpretations of fiduciary obligation have lost sight of the core ‘duty of loyalty' to beneficiaries. The complex chains of financial intermediaries involved in today's pension investment have introduced widespread conflicts of interest which are inconsistent with a strict understanding of fiduciary obligation. The report calls on regulators to confirm that asset managers, investment consultants and insurance companies providing pension products are all fiduciaries by law.

Ms Berry went on to say:

"From 2000-2009, pension investment returns collapsed to 1.1% per year while funds' payments to intermediaries rose by more than 50%. Against this backdrop the industry needs to ask itself whether it is truly fulfilling its fiduciary obligations to beneficiaries. The current situation simply does not offer enough protection for savers from self-serving or reckless behaviour by their agents."

The report calls on the government to give savers more say in how their money is managed and to promote long term thinking in order to protect the savings of beneficiaries.

The research also highlights the part that investors played in the financial crisis of 2008. ShareAction points out that, unlike bankers, the people managing pension savings have emerged from the financial crisis with their reputations virtually unscathed despite evidence of their significant role in encouraging risky corporate behaviour in the build up to the crash

Comments on the report

" [People are] incredibly impressed by the work, its analysis and its detail."

"The report speaks to a number of policy changes that the government are facing... Pensions savers should have a say in the management of their money."

- Ed Davey, Minister for Employment Relations, Consumser and Postal Affairs

"Fiduciary duty is the foundation of our capital markets. It is in need of repair. This report surveys the flaws and the work to be done. The report deserves to be widely read and the questions it poses deserve carefully considered response."

-Anne Simpson, Senior Faculty Fellow, Yale and Senior Portfolio Manager, CalPERS

"It's been very obvious for a long time that there was an inherent conflict at the core of pension management. Full marks to ShareAction for very ably exposing it."

-Richard Murphy, Tax Research UK

"Despite the hard work of many pension trustees, there is no denying the disappointing returns of the last decade. The 2008 financial crisis was a particularly nasty shock. Our report challenges the view that what happened was just bad luck. Rather, the detailed research behind this report suggests we urgently need to shake up what is expected of the layers of agents involved in investing other people's pension savings."

- Catherine Howarth, CEO ShareAction