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Special Report

ESG: The metrics jigsaw


Why demand is rising

Competition among consultants and other pension intermediaries in Norway is set to heat up. Demand for advisory services is intensifying ahead of several changes which are now making their way along the legislative pipeline.
Christian Fotland, managing director of Gabler & Partners in Oslo, says there are many changes in the market. As well as the raft of new laws that clients are having to get to grips with, the low interest rate environment also presents challenges.
Pension clients in Norway, says Tor Sydnes, consultant at Wassum in Bergen, are already seeking advice on action they should take in the wake of new legislation for the life insurers. In Norway, most voluntary employer-sponsored pension plans are funded through group insurance.
Currently, the life insurers guarantee an annual return of about 3%, says Sydnes. They collect the cost of the guarantee premiums from clients throughout the year. But in future, it has been proposed that they should collect the premium up front, once a year.
As well as this, there is a proposal to change a law preventing pension funds moving their unrealised gains when they are switching assets from one life insurance company to another.
There is increasing demand for consultancy services in Norway, says Per Myklestu, head of Mercer Human Resource Consulting in Norway and the whole Nordic region. Clients are looking for advice within several areas, he says – on the international financial reporting standard (IFRS), the question of defined benefit versus defined contribution schemes, the design or redesign of pension and benefit plans and for help with the outsourcing of administration services.
Sydnes says there has been a rise in demand from clients for financial know-how. While insurance brokers have been very good in providing technical detail, consultants are being called upon to deal with issues such as the correct level of coverage a pension scheme should have, and what kind of interface it needs with the life insurance companies.
“When it comes to the financial details - whether you should go for one life insurance company or the other, whether you should establish your own pension fund - we’ve seen a lot of interest here,” says Sydnes.
There is also the problem of low equity exposure, he says. The life insurance companies have become very risk averse, as a result of the stockmarket slides in the last few years. “They almost don’t have equities,” says Sydnes, estimating that stock allocations have dwindled to between 10% and 15% at many insurers.
Sydnes says the adviser market in Norway has been dominated more by insurance brokers than consultants. “They have been helping even large pension schemes in setting up their schemes,” he says. “Maybe not actually designing the schemes, but finding insurance companies,” he says.
Myklestu says there has been a lot of restructuring recently in the country’s pensions consultancy industry. His old company Benefit Network in Norway and Sweden was acquired by Mercer in November 2003. Gabler & Partners was spun off from Nordea last year, and there has been a general changeover from commission to fees on brokerage business, he says.
For many years, there has been only a marginal market for independent investment advice in the pensions sector, but consultants see this changing now. “We see a growing demand for these services linked to pension consulting,” says Myklestu. “Mercer has since June 2004 started offering investment consulting services in the marketplace.” A few other players active in the marketplace too, he says, including Wassum, AON, Griff and Pensjon & Finans.
In the field of pension consulting, there is AON, Mercer, Willis and the local players, most of whom are traditional brokerages, says Myklestu. Within investment consulting, it is Wassum, AON, Pensjon & Finans and Griff that come to the fore.
“In general, international firms with a strong local presence seem to have an advantage in the market for the big clients and subsidiaries of international clients,” he says. Next year, the restructuring is likely to continue, he predicts, due to the change from commissions to fees in the brokerage industry. He believes there will be fewer and more professional consultancies, dominated by international firms. Fotland, too, predicts much tougher competition in the intermediary segment.

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