APT·INVESTMENT · Module 3: Investment for DB and DC Schemes·UnitINVESTMENT · Unit 03Access: Premium
Unit 3.3: Fund Managers, Fees, Performance and Custody
Unit 3.3 covers appointing and monitoring the people who run the money. It takes in the selection of fund managers and the criteria used, the nature of fee structures, the charges that apply in defined contribution arrangements, which the syllabus marks DC only, the measurement of performance against indices, benchmarks and targets, the mechanisms trustees use to monitor investment arrangements and managers over time, and why sound custody arrangements matter to the safety of scheme assets. Charges are live ground for defined contribution trustees because of the value-for-members assessment they have to carry out.
What’s in it.
6 topics- Topic 01
The Selection of Fund Managers
44 questions - Topic 02
The Nature of Fee Structures
44 questions - Topic 03
The Nature of Charges (DC Arrangements Only)
43 questions - Topic 04
Measurements of Performance Using Indices, Benchmarks and Targets
44 questions - Topic 05
Mechanisms for Monitoring Investment Arrangements and Fund Managers
45 questions - Topic 06
The Importance of Sound Custody Arrangements
44 questions
Sample questions
3 of manyA few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.
A trustee board skips setting formal selection criteria and instead asks its investment consultant to shortlist managers based on the consultant's general market view. What risk does this create?
- The shortlist may not align with the scheme's own strategy and SIPCorrect answer
- The trustees would automatically breach the CMA Order's tender requirement
- The trustees would lose their statutory power to delegate investment discretion
- The shortlist would need to be re-run through a beauty parade twice
ExplanationSelection criteria exist to anchor the shortlist to the scheme's own strategy and SIP; without them, a consultant's general market view may produce candidates suited to the market broadly rather than to this scheme specifically. This scenario does not itself breach FSMA 2000, trigger the CMA Order's tender requirement, require a double beauty parade, block the IMA, or remove the trustees' delegation power. Key takeaway: criteria set before shortlisting keep the search scheme-specific.
Since a 2023 amendment to the Charges and Governance Regulations, what type of fee can also sit outside the 0.75% cap if smoothed appropriately?
- Administration fees charged for member communications
- Custody fees charged by the scheme's custodian
- All ad valorem fees regardless of structure
- Specified performance-based fees that meet defined conditionsCorrect answer
ExplanationThe 2023 amendment to the Occupational Pension Schemes (Charges and Governance) Regulations extended the exclusion from the 0.75% cap to specified performance-based fees that meet defined conditions, provided they are smoothed or averaged appropriately. Ad valorem fees generally remain within the cap, custody and administration fees are explicit costs already counted, employer-agreed fees have no special status, and the exclusion is not confined to AVC arrangements. Key takeaway: the 2023 amendment's exclusion is narrowly targeted at qualifying, smoothed performance-based fees, not fees generally.
A manager has underperformed its benchmark for several consecutive quarters. Trustees decide the concern is not yet serious enough to terminate the appointment, but want to signal heightened scrutiny with a defined future review point. What governance status reflects this decision?
- Removing the manager's FCA authorisation
- Issuing the manager with a formal termination notice
- Reclassifying the manager's fee as a performance-based fee
- Placing the manager on a watch listCorrect answer
ExplanationA watch list is exactly the intermediate status designed for this situation: closer scrutiny and a defined review point, without terminating the appointment outright. Issuing a termination notice goes further than the trustees have decided is warranted, reporting to the FCA or removing authorisation are not within trustees' power or appropriate to this scenario, and converting mandate type or fee structure does not reflect a monitoring status decision at all. Key takeaway: a watch list is specifically the tool for signalling concern without terminating.