Focus Group: Service providers or trusted advisers?
Perhaps it should come as no surprise that all 28 respondents to this month’s Off The Record poll thought the client relations skills of the overall asset management industry were merely good to mediocre – but when it came to the manager they have known best or longest, almost all rated them good to excellent.
A UK fund commented: “There was originally a layer of consultants between the trustees and our asset managers, but over time I have developed good direct contact with them and their client responsiveness has improved considerably.”
Eight respondents rated the asset manager they have known best or longest as excellent, with a Dutch fund stating: “[They] deeply understand our needs and offer tailor-made solutions.” Just one respondent described their asset manager as mediocre.
But even when it came to the overall industry, no-one rated client relations poorly, and three-quarters rated them as good. “They know where the money is coming from, but they sometimes let the strength of institutional inertia dull their sense of client focus,” said a UK fund.
The remaining quarter felt their skills were mediocre, and a Dutch fund commented: “It seems the asset manager is [more focused] on his own interests, than in the interests of the pension funds.”
Seventeen respondents said an asset manager had given them unexpected advice that they had found useful. A UK fund stated: “Sometimes in broad based discussions around the objectives of the pension fund, asset managers have made suggestions that we may not previously have considered as an option or opportunity.”
The majority conducted manager selection (18 respondents) and tactical asset allocation (11) in-house. Nine respondents carried out strategic advice/strategic asset allocation in-house, while 12 used an investment consultant, five used an asset manager, and two employed a fiduciary manager. Seven used an investment consultant for manager selection, while six did so for tactical asset allocation. A UK fund said: “We use consultants, but have developed an in-house capability that challenges them on all three aspects.”
Eight funds felt smaller/local investment consultants gave the best investment advice. Seven favoured in-house resources, six liked asset managers’ solutions teams, three favoured large/international investment consultants, and one chose fiduciary management divisions within asset managers.
A Swedish scheme commented: “In-house steering, control and selection of strategic partners gives an efficient process and in-house accountability.”
Just over half of those polled thought that, depending on the culture of the firm, asset managers could sometimes credibly play the role of ‘trusted adviser’ to pension funds. A further four respondents said they could always do so. However, six felt they could not play this role.
“They can provide valuable viewpoints and specialist knowledge about particular markets,” said a Danish fund. “Some asset managers also have almost independent asset allocation teams, which provide good advice. But the end decisions about asset allocation and manager selection must always be taken by someone whose salary is paid solely by the client/pension fund.”
A Belgian fund believed that, in order for asset managers to better play the role of ‘trusted adviser’, they should “be an asset manager only and have no other kind of business, to avoid conflicts of interest.”
The Danish fund added: “They must make fee structures which make them independent from unfortunate incentives. For example, an asset manager who is supposed to give advice on asset allocation must not be making more money on equity products than fixed-income products.”