Looking back over last year, eastern and central Europe remained something of a black hole for consultancy firms, both multi-national and local. Despite their best efforts the companies have failed to persuade local pension funds of the need for their services. This has meant closures, a scale down in operations, and perhaps most importantly a reduction in the education process for the fledgling funds in many countries.
Meta Skok, an investment manager at Kapitalska Druuba in Ljubljana says there is little demand from funds for the services of consultants. “Although much of what has happened here has mirrored countries where funds are well established, this is one area which we seem to be slow in coming to terms with. I am not sure whether there is a suspicion that they do not really add value, or whether fund directors do not really understand what services are being offered. Either way it is difficult to see the situation changing in the near future. It may simply be a question of waiting until the industry itself develops. In that sense I do not think we are in a different situation from many other countries seeking EU membership.”
In Poland, where there has been turmoil in both the pension funds and asset management over the past few months consultants are having a difficult time of it. “I think as the economy develops towards the market model we will see a role for consultants, but it may take some considerable time,” says Bogdan Lapinski of Hewitt Associates in Warsaw. “I think generally in the areas of human resources, and with mergers and acquisitions becoming more commonplace, the idea of hiring in someone from outside is becoming more acceptable. Originally external consultants were perceived with suspicion, but now managers and boards are beginning to understand the role they have to play.”
He believes it is a question of education, but warns about raised expectations. “These need to be set at the right level, and this has been the key issue in educating both sides, in what is a maturing process. Companies and funds must not believe the consultant has all the answers, and the consultants should not pretend they have!” says Lapinski. “It is, however, likely to be a long process. Lapinski says local consultants are competing successfully with multi-nationals for what business there is. “I think they have the advantage of being more flexible, and probably benefit from an aggressive pricing policy. In some areas though their lack of expertise is a drawback. Where more complex solutions have to be found they probably lack the global experience of some of the larger international companies. Nevertheless I think costs will remain a problem for the latter.”
Miroslaw Panek at ING BSK Asset Management believes there are economic reasons for the dearth of work for consultants in Poland. “Quite a few appeared a few years ago hoping for an explosion of growth in third pillar pensions. When these proved to be inflexible and unpopular with employers, the hopes of the consultants really disappeared. In a contracted economy the employer does not need to provide incentives to keep employees, they are happy to have a job. Local consultants are relatively thin on the ground, and so far as the international consultants are concerned, they are likely to hired by western companies operating in Poland.”
In Hungary the role of the consultant seems, if anything, to be diminishing. Budapest was swamped with international companies from the early 1990s and by the middle of the decade a large number of local companies were springing up, but their performance is questioned by Istvan Farkas of FI-AD Financial Advisory in Budapest. “There is limited demand nowadays for consultancy services. Most of the international companies have pulled out of the country, and so with one notable exception they tend to be local firms. Funds are faced with the problem of how to choose the consultant in the first place. They look at performance, which frankly has been poor, and so then cost becomes a major issue.” He too believes there is a need for better education on the role of the consultant. “I know the service has been around for many years now, but still funds do not really understand what they are getting for their money. Looking at the pension funds the ones likely to have a consultancy will be a multi-national company with its own scheme. Local schemes do not see it as essential, and this is a circle which is difficult to break.”
Tomas Strnad of Citicorp Investment Company in Prague also paints a bleak picture of prospects for consultants in the Czech Republic. “Management decisions are made by the board of the fund, and unlike trustees the UK or the Netherlands they do not accept the need to take advice from outside consultants. Things may change in the future, but at the moment there are few firms offering services. Those that are are most likely to be involved in auditing or offering taxation advice. These are mainly international companies, with the domestic input minimal.”