Proper Advice In The New LGPS World

There are gaps in the provision of advice

The Local Government Pension Scheme (Pooling, Management and Investment of Funds) Regulations 2026 are due to come into force on 1^st April 2026, even though the Pension Schemes bill behind it has not yet started going through the report stage.  These regulations introduce important changes to the LGPS Scheme, albeit in far too rushed a manner.  One of them is the requirement for partner funds to take advice from their pool, and at the same time almost forbidding them the use of investment consultants.

The proposals leave some clear gaps and grey areas in the provision of advice.  While the LGPS is renowned for its ability to cope with whatever the Government chooses to throw at it, this is far from optimal.  In this article I look at the dangers they pose to partner funds' ability to act in the interests of their members.

'Proper' advice

Under the regulations, LGPS funds have a duty – as was the case before - to take ‘proper’ advice, which is described as the advice of a person whom the authority reasonably considers to be qualified by their ability in, and practical experience of, financial matters.  The reason for this legal requirement is that elected councillors are unlikely to have sufficient knowledge of finance to be able to make informed decisions about complex investment matters.

I note in passing that the definition of 'proper' advice is not the same as what the FCA considers to be advice.  Strategic advice currently lies outside the FCA's regulatory perimeter, which focuses on specified investments such as equities.

Historically, almost all funds have fulfilled this requirement either by hiring investment consultants or independent advisers, or a combination of both.  Investment consultants can bring greater resources and breadth of contact across funds and managers to the table.  Independent advisors offer wider experience of investment markets and independence with fewer agendas of their own.

In my personal experience as an independent adviser, the role starts as an investment role, advising on strategic asset allocation and manager selection.  As officers and pension committees gain trust, they often turn to their advisers for guidance on broader topics, and particularly issues of governance and decision-making.  I have found myself involved in administration issues too.

The requirement for funds to take ‘proper’ advice will not change, but under the new regime, the advice must come from the pool, and funds must consider it before setting an investment strategy.  Nor are funds allowed ‘routinely to test their pool’s advice against that of other advisors or maintain contracts for advice with other advisors’.^[1]

Potential for conflict of interest

Many have noted the innate potential for conflict of interest where a pool is advising a client and investing across its own products.  Private sector fiduciary managers have the same model, but with a crucial difference:  re-procurement must take place every three years. 

In contrast, there is no mandatory re-procurement in the LGPS, and funds are forbidden from moving pools except in extreme circumstances.  This completely lacks the protection which a commercial profit-driven structure provides:  if a fiduciary manager delivers a poor outcome, clients will leave.

The guidance nods at this with a telling paragraph within the section about strategic advice:^[2]  FCA authorisation requires that companies establish effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from adversely affecting the interests of its clients.  They must also have a robust conflict of interest policy that details how potential conflicts will be identified and managed.   

The transition gap

The pools are in varying stages of readiness to provide advice.  LPPI has in theory provided strategic advice on asset and liability management to its clients for a number of years but will have to expand its offering to cover a now broader and more varying client base.  The London CIV has launched a service, but it is too early to say whether it is effective or not.  LGPS Central has been staffing up furiously.  Borders to Coast have been transparent that they are not yet ready to provide strategic advice to their new partner funds.

In the short-term most funds will choose to hang on to their current advice providers and involve the pools in their decision-making.  That is an entirely sensible approach until 30th September.  By that date when the six-month transition period has come to an end all existing contracts for investment advice are supposed to have been terminated.  However, not all pools will be in a position to provide advice to their funds, even if they take nominal responsibility.  

There will inevitably be a degree of fudge in how this is managed, but gaps like these are the most dangerous when things go wrong.  Holding pools to account will be even more difficult during and immediately after the transition when decisions are effectively taken together.

The semantics of advice

Additionally, there is significant semantic confusion between the different kinds of advice.  Is investment advice the same as proper advice?  Is an independent adviser performing the same role as an investment adviser?  The Government's consultations on pooling over the past two years have used the words principal advice.  Is that the same as proper advice?

One consequence is lack of clarity on which advice contracts are supposed to be terminated.  Paragraph 3.12 goes on to say that ‘It is expected that any contracts put in place before the issue of this guidance will be ended as soon as possible and not renewed.’  The subject of this paragraph is strategic advice, which is undoubtedly part of ‘proper advice’.  Whether it includes independent advisers, who may or may not provide proper advice, is unclear.    

The independent person

Which brings me on to the new role of an ‘independent person’, who will sit as a non-voting member of each partner fund committee (or, if pension matters are delegated to an officer, to advise that officer).  The legal structure is by amending the LGPS Regulations 2013, and the Government also launched a closed consultation on governance with draft, but as yet unpublished, guidance.

Under this guidance the independent person’s role is to ‘provide additional independent and professional expertise including to support committees to scrutinise and challenge the advice given to them…..The role should cover all functions of the pension committee or its equivalent, including decisions on investment strategy, governance, and the role of the administering authority as a shareholder or client with its asset pool company.’^[3]  Further down, the guidance makes it clear that the independent person also needs to be able to support the committee on administration matters.

It is clearly a different role from the current advisers, as advising is not included in the role description.  The independent person may challenge the proper advice given by the pool, and presumably a committee may, after full consideration, reject it.  Advice is, after all, only advice.  It is not quite clear what happens in this situation, but a committee would certainly need their independent person to agree with their decision if it went against proper advice taken from the pool.

Moreover, it is a demanding role description and there are not many people in the LGPS world who will qualify for this role.  Probably the most likely source is the current heads of funds, who will be experienced in all areas.  But the role will be one of scrutiny and oversight, requiring different skills and attributes to those of either investment consultants or independent advisers – or indeed heads of funds.

There are also real doubts how a single person can support the committee in holding a pool to account.  This is where the investment consultants, seeing a single manager or pool through multiple prisms, are far better placed.

Is there a solution?

To conclude, I believe that the greyness in the draft guidance and legislation in the area of advice carries considerable risk for funds.

• Lack of clarity in the definition of advice

• The gap between the termination of existing investment advisory contracts and the pools’ ability to take the role on

• The potential for conflicts of interest

• The difficulty of finding people qualified to be independent persons

• The difficulty of holding the pools to account

There are multiple and fairly simple ways to mitigate these risks.  But they require the Government to relax its ideological fixation against allowing the funds to take advice from sources other than the pool.

[1] Closed consultation draft guidance on fund pooling, January 2026 paragraph 3.12.

[2] Ibid 3.11.

[3] Draft guidance on Fund Governance, January 2026 paragraph 4.5.