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Boards still lack diversity

John Belgrove

Research from AON and its partners, Leeds University Business School (LUBS), sheds fresh light on the factors affecting decision-making by pension scheme trustees.

The first report on the research findings, ‘Mapping the Trustee Landscape’, examines a range of different aspects of trustee governance including financial literacy, and attitudes to risk and social-demographics – all of which can influence trustees’ investment decision-making. The initial responses, gathered from 197 mainly defined benefit (DB) trustees and scheme managers in the UK, show the group to be highly educated and financially literate, with 93 percent of the respondents correctly answering at least four out of five questions about key financial concepts. These included time value of money, real versus nominal returns and compounding. The majority also performed well on questions regarding diversification and risk.

John Belgrove, senior partner at Aon Hewitt, said: “We believe that understanding trustee decision-making is essential in improving non-regulatory scrutiny on the asset management sector. We are, therefore, delighted to continue supporting new research into behavioural finance and the trustee context. The LUBS research builds on the work we did last year to create The Aon Trustee Checklist which helps trustees to check and militate against behavioural biases.” The wide-ranging research, led by Dr. Iain Clacher, Associate Professor in Accounting and Finance at Leeds University Business School, is based on a much larger sample than previous trustee studies of the sector. The 197 respondents, represented schemes ranging from those with less than £15m under management, up to those with more than £5bn, with 60 percent having assets under management of between £100m and £2.5bn.

Dr. Iain Clacher, Associate Professor at LUBS, said: “The research revealed that the vast majority (78 percent) of those surveyed are educated to university level, and many more had finance-specific professional qualifications. Trustees, therefore, have a much higher level of education than the general population. In general, respondents had a good understanding of financial risk, and a high level of financial literacy, both of which are key to understanding complex investment decisions. These skills should assist their decision-making around costs and fees and we will explore this in more detail in our next report.” The research also showed that: 81 percent of respondents were male; The average age of trustees is 54, with the majority aged between 50 and 70 years old and on average, respondents had ten years of trustee experience.

Dr. Iain Clacher said: “One obvious thing our survey group revealed was that trustees are overwhelmingly male and have an average age of 54 – which suggests a lack of diversity among DB trustees. This concentrated demographic is a concern given studies have found that gender diversity on corporate boards helps strengthen governance and is beneficial for monitoring and the board decision-making process. The current profile of trustees may also create an environment where ‘groupthink’ could emerge.”

Lynda Whitney, partner at Aon Hewitt, said: “Dr Clacher’s research shows that, today, 1 in 5 trustees are female – an improvement on research in 2006, which showed only 1 in 40 trustees were female. However, diversity is not just about gender or age – it is also about diversity of approach and thinking and we can draw on research into corporate boardrooms which has shown that diversity leads to better decision-making and financial outcomes.” The research project is ongoing and will provide further details on trustees’ perceptions and understanding of costs and fees, as well as on value for money and manager selection.  Aon Hewitt and LUBS will publish more findings throughout 2017.