When pension funds were created in Spain a decade ago the independent investment consulting industry was almost non-existent, since most of the gestoras were, and still are, related to the large financial institutions operating in this market, which didn’t allow much incursion from outsiders.
Although the activities of investment consultants in Spain have been growing during the past 10 years, their operations are still small. Institutional investors are becoming more aware of the need for more and better investment advice but so far the demand for services is practically limited to performance measurement and not so much focused on asset allocation and investment strategies.
“The large Spanish financial institutions have their own investment departments and give investment advice to their clients for free,” says Luis Buey, managing director of BBVA Consultores de Pensiones in Madrid, a wholly-owned subsidiary of BBVA, one of the two big Spanish financial institutions. “These investment departments are the best in the country because they are big and they have all the resources needed to provide the best advise at no cost for their clients,” Buey says. Taking this into account it would very difficult to imagine a situation were pension funds opt to pay independent consultants for their services.
“The only way for independent consultancies to gain market share is by being better than the financial institutions and convince their clients of the need for their services,” says Buey.
Also, the particular nature of the Spanish pension fund market is limiting the expansion of the consultancy industry. “We have to bear in mind that the investment consultancy affects in particular defined benefit (DB) plans,” says Manuel Peraita, at Peraita y Asociados in Madrid. “In Spain a large majority of plans are changing to defined contribution (DC), and under this plans the one who need investment advise is the individual,” he says. Because Spanish law does not allow DC schemes to provide different investment strategies to members and all the assets of the fund have to be managed in the same way, the demand from individuals and their employers for investments guidance is not an issue.
However, interest in developing further investment consulting departments among consultants based in Spain, especially those working for the big multinationals, is a reality. “These international companies have investment consulting among their range of services and have the aim to develop them further trying to increment the demand from clients,” Peraita says.
At William M Mercer, senior consultant Juan Carlos Martinez says: “ We are expanding our investment services advising the comisiones de control – boards of trustees – and companies on the investment arena, because there are more and more seeing the need for independent advice especially in everything to do with performance monitoring services” However, although the recent law requiring companies to externalise their pension reserves through a pension fund vehicle or insurance contract before the end of 2000 meant an increasing demand of consultancy services, the fact that the deadline has been recently postponed until 2002 have slowed down the growth of the business. “As soon as the government announced this delay we have seen many of the projects we were working on stop.”