UK – New research claims the “big three” firms – Watson Wyatt, Mercer and Hewitt - dominate the UK corporate pension consulting market.
The three US-owned firms advise 75% of FTSE 350 pension schemes and 85% of the FTSE 100, according to Pension Advisor Review, an independent professional service firm. The balance is spread “evenly” among 15 other providers.
“We were quite surprised by how big the monopoly is. There is an enormous distinction between the Big Three and the next level down,” said PAR founder Keith Faulkner, who did the research with his associate Stephen Hall. Faulkner is a former worldwide partner at Mercer.
These firms “maintain a huge stranglehold on the provision of UK actuarial and other pensions advice, including accounting under FRS 17 regulations,” said a PAR statement released today.
The research shows that Watson Wyatt has 31% of the FTSE 350 and 40% of the FTSE 100.
Mercer has 30% in the FTSE 350 and 33% in the FTSE 100. Hewitt Associates retains 13% of the FTSE 350 and 11% in the FTSE 100.
However none of the other actuarial firms has more than a 5% market share even though most are long-established, employ a sizeable staff, and have between 50 and 100 qualified actuaries, commented Faulkner.
“Rightly or wrongly, mid-sized actuarial firms are struggling to be taken seriously by pension scheme trustees and directors in the bigger companies and are starting to wonder why,” commented Faulkner.
“This monopoly obviously makes the smaller firms quite unhappy. The fact that they don’t even get a look in is a source of some concern.
“They would love to be taken more seriously and compete effectively with the bigger players,” Faulkner told IPE.
He does not believe that the situation represents an immediate conflict of interests.
“Instead this monopoly manifests itself as an apparent limitation on choice. Big companies believe they have to use the Big Three because everyone else is.”
Industry sources agree largely with the PAR figures, but believe that there are no obvious barriers for entry for smaller actuarial players.
Furthermore, the Big Three may have earned their majority stake in the industry due to their American parentage and American distribution capabilities – largely unrivalled in the British marketplace.
PAR’s research results follow on the heels of a recent government decision to investigate the practices of the ‘Big Four’ accounting firms. They will look into the effect this monopoly has on the provision and quality of auditing services.
Faulkner believes that a similar investigation into actuarial firms is not immediately on the cards because they lack the significance of the auditing arena.
However, the Morris Review - published in March this year - may act as a catalyst for a government review in light of its somewhat critical remarks about the actuarial profession.
It highlighted actuaries’ need to improve their communication skills, and the need for pension fund trustees and companies to be better informed and to question actuaries rather than accept advice on face value.