Check that the investment product really does what its name suggests. For example, if it is called a ‘cash fund’, does the fund really just hold cash?
Negotiation with providers
Be prepared to negotiate with providers over investment terms. Providers like to present some of their products as “take it or leave it” but you may still have some flexibility, especially if you are investing a significant amount. In general, investment agreements are the most negotiable; insurance policies and investment funds less so.
Negotiate on price and other commercial terms at an early stage. A provider may be more flexible when it is competing with others for your scheme’s assets. Pay close attention to how risks are to be shared between you and the provider, and what level of service the provider is offering.
Moving assets between providers
Consider how you are going to transfer scheme assets from one provider to another, and whether a separate agreement will be necessary to cover this. Check what happens if you or the provider wish to bring the agreement to an end. You may need to serve notice and penalties may apply. Some contracts build in delays if assets are difficult to sell.
Monitoring your investments
Think about what information you’ll need from the provider to monitor your investments. Ensure procedures are in place to pick up on errors and put them right. If you have entered a swap contract, you will also need to monitor the security of the counterparties and the collateral.
ESG and stewardship
Make sure that you agree with the provider on what it needs to do in order to comply with your environmental, social and governance (ESG) investment strategy and your policies on, for example, the exercise of voting rights. Ensure that the provider updates you on how it implements your requirements.
Make sure you understand the total cost of your investments. This isn’t always clear, especially if more than one manager is involved.
If there is a performance-related fee, make sure it is clear how this works and that it is calculated over an acceptable period. Ask the provider for examples of what happens if performance fluctuates over a long period.
Don’t forget the big picture. Understand how all your investment providers work together and ensure the agreements reflect this.
Check whether your statement of investment principles needs to be updated. If it does, remember that you’ll need to consult with the sponsoring employer of the scheme.