EUROPE – The head of Watson Wyatt’s European investment practice, Nick Watts, says there is a “strong appetite” among its pension fund clients for fixed investment-management fees.
“Our pension clients now have a strong appetite for moving towards a fixed fee with some performance element,” says Watts. “For their part, managers are showing some interest but they have not yet been persuaded.”
“We believe that this move is as much in managers’ as in pension funds’ interest, as it would improve revenue visibility and encourage greater management of the cost base in the long term,” Watt writes in the firm’s investment manager update for 2003.
The comments come amid increasing tension between consultants and managers, highlighted by a recent report from KPMG and Create.
Watts says the “feast and famine” created by ad valorem fees is “bad news” for the industry in the long term. He says a fixed fee structure, with perhaps a performance element, would provide “better alignment between the manager’s and the client’s interests”.
He added that Watson Wyatt remains committed to just providing advice, and not products such as fund of funds, saying there is a potential conflict of interest. “For us, it would be difficult to give impartial advice to a client, while at the same time promoting a product.”
Watts also said Watson Wyatt is benefiting from the “fallout from the investment industry”. “As the gap in remuneration between consulting and investment management narrows, we are able to attract people with good investment management skills,” he says.