Trustee knowledge maximises consultancy service
EUROPE - Pension fund executives and trustees can get more from their relationships with and the services delivered by consultants by improving their own knowledge base, suggests a study conducted by IPE.
A survey of 15 European consultancies through face-to-face and phone interviews as well as online questionnaires, has revealed consultants have mixed opinions about how pensions executives can get the best of the services they offer, though they in the main revolve around improved trustees and executive knowledge.
Fabrizio Amirati, director and senior adviser at Kieger Institutional Investment Consulting in Zurich, argued knowledge of the basic principles behind investing is essential to any client seeking advice.
"Clients can get the best from their consultant if they invest time and resources in the basic understanding of financial matter. Only if clients are able to challenge the consultants in their advisory activity can they get better outcomes. They can then even go
further and understand if investment consultants do a good job or not," said Amirati.
Marc Hommel, partner and UK pensions leader at PricewaterhouseCoopers in London, suggested the key, in his opinion, is in fully understanding where pensions officials want real help, what they expect and who will take responsibility for decisions made.
"I think this can be achieved by establishing clarity around the areas in which the trustee is looking for help, the roles and responsibilities, asking who picks up the tab if it goes wrong, defining the ‘it' and the ‘who' helps," said Hommel.
"Trustees need to become far more directive to their consultants. If you go back 10 or 20 years, pension funds were run by the actuary, whereas these days the trustees need to be in charge. So there need to be clear roles and responsibilities, service level agreements, monitoring performance, regular reviews of performance against cost, and regular benchmarking."
Hommel continued: "I think everyone needs to recognise that both trustees and advisers have incredibly difficult jobs and onerous responsibilities and the more clarity you can have and the more effective your governance is, the less likely something is likely to go wrong."
Lee Jagger, partner at KPMG's pensions practice in London, argued a clear definition of responsibility and decision-making is essential when handling several different parties behind pensions management.
"In a deal situation where there are multiple interested stakeholders - banks, equity holders, et cetera: a situation where a deal is required - you need a chairman of trustees who can chair a meeting well and can control his advisers and other trustees, especially in a commercial situation where there is no perfect answer for everyone," said Jagger.
It's a stance Yvan Legris, president and global head of consulting at Hewitt, also largely agrees with.
"The set-up [of a pension fun's management] is really important for successful outcomes. Clients and consultants need to work in partnership because life is not about hard lines all the time, with the responsibility of x left of the line and y right of the line. X and Y need to work collaboratively. So while we use a strong bench of specialists we also need experienced practitioners at the front end," said Legris.
Paul Trickett, European head of investment consulting at Watson Wyatt in London, said he agreed in the push for improved governance at pension funds because improved governance also means executives can push and challenge consultants with more demanding questions.
"Being sceptical users of investment consulting input, and I chose that word carefully, would make a difference. However, by sceptical I mean asking questions and being interrogative about it, not being bloody-minded, "said Trickett.
"There is sometimes an assumption that we are at loggerheads with asset managers or are trying to fight for one another's space. I do think it helpful that asset managers pass comment on the work that we do in the same way that we pass comment about them," he added.
Interestingly, while clients should set their own agendas for the pension scheme, according to Ken Willis, head of corporate investment consulting, Lane, Clark & Peacock, he believes "no question is too silly" either when it comes to asking for support of their consultants.
"It is always the consultant's fault if clients do not understand," said Willis.
"And we should ensure all advice is expressed in monetary amounts as too often time, governance and fees are spent on small issues because they have been expressed in percentage underperformance terms.
"Pension fund boards should also focus on what investments are not held, as well as what is held and learn about new ideas. And they need to set clear objectives for your consultant, which should be related to trustee understanding and proactivity rather than just investment and manager performance," he concluded.
Further developments within the consultantcy market are discussed to accompany an in-depth analysis published in the March edition of IPE.