Canada: Oversight Or Fiduciary Managers

There is a new kid on the block.

Some employers sponsoring large and/or multiple registered pension plans (RPPs) have recently begun outsourcing most if not all of the investment functions that are typically handled in-house. The reasons motivating this is a perceived lack of internal resources and expertise to effectively deal with an increasingly complex investment universe. The first component of this type of outsourcing is the selection of what is known as an "oversight" or "fiduciary" manager (Manager).

Origins and Nature of Investment Outsourcing

Investment outsourcing first began in the Netherlands and the UK a few years ago. It has since spread to the US, and now to Canada.

The concept involves the appointment of a Manager, a third party who manages the totality of the RPP's assets in accordance with the RPP's statement of investment policies and procedures (SIPP). Where the RPP assets are aggregated and invested through a master trust, the Manager manages the master trust's assets in accordance with the master trust's version of the SIPP (which should accord with the SIPPs of the RPPs investing in the master trust.)1

Typically, the Manager is responsible for selecting and monitoring the investment managers who are in turn responsible for investing the various asset portfolios within the RPP fund. It is the Manager who enters into the investment management contracts and to whom the investment managers report. The Manager may thus be referred to as a "manager of managers".

Therefore, although some of what the Manager does will be advisory in nature, other services will be delegated to it by the RPP administrator (Administrator) and therefore provided as an agent of the Administrator. This blending of advisory and delegated investment services, some of which will be more "fiduciary" in nature than others, represents this type of relationship's biggest challenge.

The main providers of fiduciary management services in Canada are mostly US-based asset managers, investment advisors and investment consultants.

The Standard of Care

It all goes back to the standard of care set out in pension standards legislation and to whom it applies. Although it is described in a variety of ways, the standard of care found in such legislation is fiduciary in nature.2 Because Canadian pension standards legislation does not constitute a complete code but is rather suppletive of the common law, the Administrator may not displace or rid itself of the obligation to act in accordance with its statutory standard of care. All that it can do is to discharge its fiduciary obligation by always acting in accordance with the standard. Although pension standards legislation tends to be less explicit about who else may be subject to the standard of care and under what circumstances it may apply to someone other than the Administrator, it is expected that the standard of care will apply to anyone who has discretionary authority or control over the administration or management of the RPP, including determining how its assets are to be invested. It clearly extends to agents of the Administrator, although determining when a relationship is one of agency is not always easy.

Because the legal underpinnings of the pension plan investment differ from jurisdiction to jurisdiction, what may work well in one jurisdiction may not work so well in another. For example, the concept of "named fiduciaries" in the US, pursuant to which an entity other than the sponsoring employer may be identified as being a fiduciary, means that the sponsoring employer may be shielded from obligations in respect of which it is not identified as the fiduciary. Such is not the case in Canada.

The Manager as a Fiduciary

The biggest challenges in an outsourcing situation consist of determining who is ultimately making a given decision, understanding the consequences of the decision-making process, and ensuring that the parties' intentions are reflected in the outsourcing agreement. For example, the Manager may, at first blush, be responsible for selecting and overseeing the investment managers, but if the outsourcing agreement requires that the Administrator "bless" the selection of an investment manager, is it the Administrator or the Manager who has ultimately made the selection? Does it matter?

There are many things that the parties will have to consider in coming to an agreement and crafting a satisfactory outsourcing agreement. The following are some of those considerations:

  • Who will select the investment managers?
  • Will the same party select all of the investment managers or are there some who will or should be selected by one and not the other?
  • Assuming that the investment managers report to the Manager, will or should they also report to the Administrator and when?
  • Who will work on the SIPP and when?
  • What other services will the Manager provide and how and where will these be described?

The Layering Effect

One of the trickier aspects of investment outsourcing occurs as a result of the Manager entering into the investment management agreements. The Administrator should require, in the outsourcing agreement, that the Manager, in the investment management contracts:

  • subject the investment managers to the same standard of care as the one to which the Manager itself is subjected (which should be the same or equivalent to the statutory standard).
  • require that the investment managers be liable for losses caused by their breach of their standard of care, not only to the other party to the investment management agreement (i.e., the Manager) but also to the Administrator and/or the RPP.
  • require that the investment managers indemnify not only the Manager but also the Administrator and/or the RPP for such losses.

The reason for this is the layering of fiduciaries and the effect of a fiduciary's discharge of its standard of care. Here is an example. Let's say that:

  • everyone, the Administrator, the Manager and the investment manager, are subject to the same standard of care (the Manager's standard being set out in the outsourcing agreement, and the investment manager's being set out in the investment management agreement).
  • the Manager, in selecting and monitoring the investment manager, acted in accordance with its standard of care.
  • the investment manager breached its standard of care, and the RPP suffered a loss as a consequence.

Given that the Manager has not breached its standard of care when selecting and monitoring the investment manager, the Administrator may not be able to successfully claim against the Manager. Since the Manager will therefore not have suffered any losses, there will be nothing against which the investment manager would be required to indemnify the Manager.

The Outsourcing Agreement

In addition to dealing with the issues discussed above, the outsourcing agreement should confirm that the Manager has obtained all applicable governmental and regulatory licences and approvals and is qualified to provide the services it has been engaged to provide. It should also oblige the Manager to make sure that it receives the same representations from the investment managers.

Like any other legal contract, an outsourcing agreement should be reviewed by legal counsel. In fact, given that such agreements tend to be complex and are too new for there to have developed any sort of "standard" agreement, it is imperative that the legal review be carried out by someone who is knowledgeable in the areas of pension and securities laws.

To view the original article please click here.


1 In fact, the Manager's first task may well be to review the SIPP and suggest any revisions required to ensure that the SIPP be consistent with the outsourcing structure.

2 For example, see section 8 of the Pension Benefits Standard Act, 1985 and section 22 of the Pension Benefits Act of Ontario.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions