Crisis increases demands on consultants
EUROPE - Pensions and investment consultants say they now expect to face higher scrutiny of their own services by clients as well as challenges to the advice they give, as a result of the recent financial crisis.
IPE conducted interviews with 15 consultants from across Europe through face-to-face, telephone and questionnaires to gauge their views on the state of the consultancy market and its handling of the ongoing investment turmoil.
Those findings revealed there is now greater scrutiny by pension fund executives of investment risks and measurement, as well as of a consultancy's worth, though at the same time trustees and clients are in a better position to challenge what they are being told thanks to their own improved knowledge.
"We have been advising clients on transparent investments where risks are evident and
not hidden," said Fabrizio Amirati, director and senior adviser at Kieger Institutional Investment Consulting in Zurich.
"This will not change in the future, but we will strive to investigate risks where normally one would think there aren't [any]. There will be an increased need of independent consulting because the trust in financial institutions has gone," he added.
Similarly, John Conroy, partner at Psolve in London, said he has noticed "increased emphasis on measurability", not just of his own services but of those they advise on.
"There has been a trend for quite a while towards getting a measure of the value added," said Conroy.
"I think we are seeing some very serious attention being behind this but our view is that the trend has been underway for a while and the events of the last 18 months give it a further impetus. People are genuinely looking at the organisations that serve them in making ALM work and are saying ‘what is it you do again for your crust?'," continued Conroy.
Interestingly, heightened awareness of responsibilities towards a pension scheme has encouraged trustees and executives to question much more what they are told in light of the apparent lack of transparency within the financial market and certain investment offerings, though this will in fact enhance the market, suggested Andrew Kirton, global head of investment consulting at Mercer.
"I find myself less in situations where you tell a client what to do and then they do it and much more in situations where we make an input, it gets challenged, or someone else makes an input and we challenge it: much more being part of a team than being a director, which I think is much better than before. It's not a good world where you're not being challenged," said Kirton.
This is perhaps in part because the new financial environment means all of the knowledge pension funds executives previously held has been turned on its head by events, according to Anton Van Nunen, of Van Nunen & Partners in the Netherlands.
"Many pension funds see the credit crisis as a sea change, a totally new world, which requires new thinking and an overhaul of all certainties of the past. They feel they have entered a new world," said Van Nunen.
"Business in general will grow, along with the difficulties pension funds encounter with volatile markets and strong regulation. More funds will take the ultimate conclusion that, more than ever before, they need a helping hand, be it a fiduciary, or a consultant for strategic issues - on new mix, hedging interest rate risks, or a second opinion on recovery plans."
Taking a slightly different track, Steve White, head of pensions and investments at Buck Consultants in the UK, suggested pensions officials may be driven to reconsider the nature of investments they adopt.
"While the investment consulting industry is generally defensive in nature, it is not immune to the wider economic effects of the crisis and we expect it will face continued pressure as clients increasingly control costs," said White.
"We believe that this will deter clients from adopting excessively complex investment arrangements that require extensive training and detailed monitoring. The consulting industry should respond by offering simple solutions to improve transparency and reduce the governance burden," he added.
Further developments within the consultantcy market will be discussed on IPE.com over the course of the week, to accompany an in-depth analysis published in the March edition of IPE.