Coming into their own
International consultancies are gaining confidence in the German market. For years they have relied on joint ventures with the well-established local firms to get a foothold in the country. But now the larger global firms are stepping out on their own – sure that they have exactly what clients need in the changing corporate and pensions environment.
A series of strategic moves – notably by Mercer and Watson Wyatt – has shown just how important Germany is to international consultancies. Last September, Mercer took on up to 38 pension staff in a deal with PricewaterhouseCoopers in Germany, and in the April before that it bought the German actuarial services division of KPMG.
More recently, Watson Wyatt launched its own actuarial and benefits consulting business in Germany – Watson Wyatt Germany – despite already having a joint venture with German actuarial firm Bode Grabner Beye. Since then, 11 staff have chosen to leave the joint venture in favour of the new subsidiary.
Why did Watson feel the need to set up on its own? It established the joint venture 20 years ago. At the time this was the right thing to do, says Babloo Ramamurthy, head of Watson Wyatt’s benefits consulting group in Europe, as the market for pensions consultants was very much dominated by local firms.
But the environment has changed since then, and the firm is now trying to distinguish itself from the other international consultancies operating in the country – which all appear increasingly similar, he says. To set itself apart, Watsons is keen to integrate the services it offers internationally – benefits, human capital, investment consultancy and company financial services.
“In the joint venture we were somewhat restricted,” he says. “The joint venture partner has a very dominant position among German corporates, narrowly focussed on pensions consulting…Our approach is trying to integrate our offerings.”
Changes in pensions legislation over the last few years have expanded the possibilities for consultants, he says. “There are opportunities for a lot of plan design work, and there is a push towards defined contribution plans which weren’t possible before.”
Major companies in Germany are starting to become more centralised because of international accounting standards, and many are facing the need to manage benefits in a different way. Because of this, corporations are keen to work with just one consultancy firm on all of these issued. “This very much plays to our strengths,” says Ramamurthy.
The whole theme of retirement provision had come into sharper focus in Germany over the last few years. It is only two years since pension funds first began to spring up in the German market, Richard Herrmann, member of the executive board of Heubeck in Cologne, points out. Increasingly, businesses in the country are keen to set up these funds, and take plan assets off the balance sheet.
As German companies centralise and switch to international accounting norms — in some cases moving away from book reserve pension schemes — there is a need for broader advice from consultants, says Michael Freisberg, managing partner at Towers Perrin in Frankfurt.
“It is more a global adviser than a local actuary that is needed. There are more disclosure requirements through this international accounting method, and this has forced pensions actuaries to become more knowledgeable about that. There is much more interaction between finance, HR and controlling.”
Alfred Gohdes, CEO of Buck Heissmann in Wiesbaden says the changes mean a challenge for consultants and the whole way they approach their work with clients. “The market has changed and the profile of our competitors has changed,” he says. “We need to be more proactive towards our clients. Our investment consulting unit has had some real successes here recently.”
Of course, there is work for be done on the technical changes that have come about in the pensions environment, but there is also a cultural shift that needs to happen. “We must continue to align ourselves to the needs of our clients,” he says.
But Gohdes says the distinction between ‘local’ and ‘international’ consultancies as used in the media often creates a false impression. Firms which grow out of the domestic soil are not insular or blinkered or unconnected to a global network - a number of them are just as well and sometimes better equipped than branches of the international firms to deal with international work – global investment and the full service range, he says.
“Local firms tend to have the advantage of being better established in the market, but are sometimes part of or manage an international network.” Gohdes manages the Euopean BuckHeissmann Network from Wiesbaden.But Freisberg of Towers Perrin says global networks do not always work well because they don’t have a common interest. He says there is a need for consultants to be globally present. “You can’t handle this out of Frankfurt if you have no other locations elsewhere,” he says.
Herrmann says a major issue facing pension consultants over the next 12 months will be the use of pension funds for employer-financed pension plans. There are some restrictions in both the wording and the content of the legislation on this, but this is currently being decided in the finance committee of the Bundestag. The ceiling on employer contributions should be doubled from its current level.
When this has been settled, consultants will be working its implications through with clients, explaining the circumstances and restrictions, he says.