Law Commission’s consultation on fiduciary duty closes

The Law Commission’s consultation on the fiduciary duties of investment intermediaries closes today, after three months. The organisation is looking at the pension market to assess the duties of pension trustees.

The project follows the Kay review, which urged longer-term thinking in the investment world and recommended applying fiduciary standards to more people within the investment chain. It argued that anyone who manages or advises people on how to invest their money should be required to put their client’s needs first.

The government’s response to the review confirmed that it is committed to removing mandatory quarterly reporting for UK companies and stated that it would consult with the Law Commission to legally define fiduciary duty.

One of the questions the Law Commission is looking at, is whether the law is right to allow trustees to consider ethical issues only in limited circumstances. In its submission to the commission, responsible investment charity ShareAction called on the organisation to provide a more “holistic statement” on fiduciary duties and encourage sustainable investment.

The campaign group said that by clarifying investors’ ability to take into account other factors, the law could promote long-term sustainable investment. Failing to do so could inadvertently promote a “silo mentality”, it added.

Catherine Howarth, chief executive at ShareAction, commented, “Without formal clarification of what fiduciary duty involves we will continue to see significant confusion over the factors which fiduciary investors may take into account. The law should no longer by seen as a barrier to responsible behaviour on the part of institutional investors.”

Other areas the organisation is looking at include whether or not pension providers should by duty-bound to review the suitability of their investment strategies and if the duties of contract-based pensions providers should be clarified and strengthened.

A full report from the Law Commission is not expected to be published until June 2014.

Further reading:

ShareAction calls for laws to encourage sustainable investment

Government response to Kay review outlines plans to modify equity market

Fiduciary responsibility in context of a global emergency

Tapping into the all-powerful financial system to influence investor behaviour

Sustainability: a real growth opportunity for investors