Sweden is an important market for international pension consultancies, as evidenced by Mercer’s recent moves in the country. But in some areas at least, consultants believe they still have their work cut out for them in persuading potential clients of the value of their independence and expertise.
Petter von Heidenstam, consultant at Watson Wyatt AB in Stockholm, says one of the tasks facing consultants in Sweden this year is to raise the understanding of the service that international investment consultants offer in the market place.
Some banks and asset managers do provide investment advice to pension and foundation clients, he says. “It gives potential clients an excuse for not truly dealing with investment issues because they believe that their bank or asset manager is providing that advice to them… It will take time for them to understand the difference between the services offered by consultants and banks and asset managers.”
Some of the services that these institutions offer can be viewed as competition for consultants, says Nicklas Fahlström of Wassum Investment Consulting in Stockholm, for instance, ALM studies. “But often the clients realise that there are no ‘free lunches’,” he says. “Many clients also realise that they cannot receive full consulting services from asset management organisations — manager searches and portfolio monitoring or evaluation. This is why bank and investment manager services mostly takes the form of one-off assignments.”
It can be a problem when banks and asset managers offer this type of service, says Fredrik Palm, actuarial/financial consultant at PMR Consulting. “Their interest is, of course, often to sell their own products. I believe it’s OK for banks and asset managers to provide some services, but not strategic issues like ALM studies,” he says. These should always be carried out by independent consultants in order to guarantee that there will be no favouring of specific asset classes, and so on.
Stefan Carlsson, senior consultant on the benefit side at Watson Wyatt says the Swedish market for benefits consultants is still not mature. Clients, he says, still rely on insurance companies and brokers. However, some companies do have a broader relationship with consultants and the tendency is towards stronger relationships – this is especially the case for multi-national companies with subsidiaries in Sweden.
Mercer announced last November that it is buying various businesses in Norway and Sweden from Benefit Network ASA and Benefit Network AS, including the Swedish subsidiary Pensionsservice AB. The acquisition will leave Mercer with 62 employees in Stockholm, Göteborg and Malmö.
Edouard Merette, the Mercer executive vice-president responsible for European operations, said the transaction responded to the “new business environment in the Nordic region, with its rapid change from commission-based to fee-based financial relationships with clients”.
But consultants on both the benefits and investment side say there is still a certain level resistance from clients to paying fees. This, say some, is partly because international consultant fees are high in relation to what clients expect to pay. As well as this, clients are used to paying consultants on a project basis, but this level of remuneration does not allow for coverage of the ongoing research that consultants undertake.
But clients are increasingly willing to use independent consultants, says Fahlström. “The market for consulting services increases as a reflection of the fact that clients realise that it is troublesome – and expensive – to build in-house competence and that they need third-party assessment.” Although the price of the service is discussed, he says, clients are prepared and willing to pay the cost once the decision to hire consultants has been made.
The main players in the pensions consultancy market in Sweden are Mercer, Watson Wyatt, Towers Perrin, SPP Konsult, PwC, Carnegie and Max Matthiessen Human Capital on the benefits consultant market. While on the investment consulting side, Wassum and Bohman & Lindström deal with a number of smaller and local clients, the more internationally orientated clients, including the AP funds, deal with the international consultants.
Local consultancies, individual consultants and large international firms coexist in the Swedish marketplace. Fahlström says local consultants probably have the edge when it comes to knowledge of local regulations and the problems facing local clients – at least that is the case with pension clients. But Wassum’s strategic alliance with Hewitt Bacon & Woodrow helps when competing internationally or locally against international firms, he says.
Demand, he says, is likely to increase over the next year for services that give the boards of pension funds greater insight, management and control. There has been more of an emphasis on this aspect as a result of the slump in financial markets and the debate surrounding the responsibility of the board, he says.
Another area of interest for clients, he says, is in managing the investment manager search process in a truly flexible way. “This does not only relate to manager-of-manager issues, rather it relates to packaged solutions containing more services such as risk control features, ethical revision, reporting and tailor-made investment strategies.
“Within the defined contribution area we see an increasing demand for services that help individuals manage their pension capital safely. This is a new market for investment consultants. The challenge is to solve the issues rationally, being an investment consultant in the institutional market.”