The importance of actuarial and employee benefit advice to employers is clearly reflected in their selection criteria. Price is much less important, on the whole, than the advisory firm’s reputation. But established firms should not simply trade on their name: relationships also count.
To quote one pensions manager: Very often you could be with one of the best firms but if they send along the wrong team and you don’t gel with them, it colours your opinion of the firm as a whole.”
PGGM, one of the larger Dutch pension funds with Dfl66bn ($35bn) under management, proves such relationships can be successful. For 25 years, it has employed Brans & Co, a Dutch actuary related to KPMG, for actuarial services and Coopers & Lybrand for employee benefits. A spokesman says simply: “The relationship with our consultants is based on proven expertise and trust.”
Geoff Pearson, pensions manager of UK supermarket group J Sainbury, says he prefers to work with people he knows. He bases selection on reputation and on any required specialist knowledge. The company uses Alexander Consulting for its benefits statements, Hyman Roberts for benchmarking (where it has a strong reputation) and Towers Perrin to come up with new ideas. Several companies look beyond their usual consultants for ideas generation.
It is rare for an employer to change actuaries. By its nature the field requires continuity. In other employee benefit areas, consultants are typically reviewed every three years, when work is tendered usually to the incumbent and two other firms. Price plays a part, but only if costs are so high as to make it a negative factor. “If the people that we want to select offer a reasonable price then we continue with them. If not, we consider switching,” says Pearson.
Denise D’Hondt, compensation and benefits manager for Levi Strauss in Belgium says that any company she uses must have worldwide recognition. “I wouldn’t use someone who is only known in his own country. The company must have sister companies or at least affiliatesin other countries.” She carries out yearly checks on price, looking for any large increases. “If costs rise, then I go to the firm and ask for an explanation. If they cannot answer, I go directly to the consultant.”
In the UK, Rita Powell, pension manager for Chloride Group, uses Bacon & Woodrow for scheme design - particularly for the design of the investment manager agreement, although this also requires lawyers.
The group reviewed investment consultants one year ago. She echoes other managers in her priorities: “It wasn’t so much costs. We were looking for a good relationship with the individual that we would be working with and also some sort of originality of ideas.” However the group does try to keep costs to a minimum, and if possible to negotiate fixed fees.
Bob O’Reilly, group pensions manager of Aer Lingus in Dublin, says that an actuarial valuation is done every three years, with consultants used for any queries that are beyond in-house expertise.
The company unusually manages its own portfolio of Irish equity, using investment managers for the rest. Besides performance, which is scrutinised every quarter, and level of fees, O’Reilly prioritises the security of assets. “The content of the investment management agreement is a key area. At the end of the day the most important thing is the security of your assets.”
Overall the priorities of pensions managers indicate that, provided costs are kept below a certain threshold, advisers should look to build on their reputation and, as in any business, place great emphasis on maintaining good client relations.
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