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The
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While it may seem unnecessary to spend extra money on consultants when the pension scheme is running smoothly, it may be the time when they are needed the most. Angela Pasceri looks at how to make the best use of your consultant Each scheme has its own idiosyncrasies and particular requirements with regard to investment strategy. These are dependent on liability profile, technological capabilities in terms of communication and administration, and in-house expertise and available human resources to manage the scheme. Whether trustees decide to use consultants or how they decide to use them is a reflection of their set of circumstances. There
are no fixed rules on how to pick your consultant but there are
some basic yardsticks that can be applied to determine if you are
getting your money’s worth. “We use them mainly because we’re not staffed up to deal with every aspect of pension administration or communication, so we would prefer to buy in the services of the consultant rather than to have that expertise in-house,” says Linda Parker, DuPont’s pension fund manager and administrator. In hiring consultants, Parker looks for more than just efficiency and lower costs, she wants quality and added value. “We don’t have in-house expertise in communication for example, so we would go to an expert and buy the whole package from them.” Parker consults regularly with the scheme’s actuaries on design and an external law firm handles contract updates and scheme rule amendments in keeping with any changes in legislation and regulations. The pension fund pays out approximately £2.5mn per annum on fees of which £1.5mn goes to the investment manager and the rest to consultants. Is
it worth it? According to Douglas Love it’s not, but his circumstances
are quite different. The pensions scheme administrator at Dumfries
& Galloway Council has two staff members to assist him in managing
a fund valued at approximately £330mn. One
other key consideration to make in selecting consultants is whether
to settle on a one-stop-shop style consultancy or to hire specialist
organisations. Determining whether a one-stop-shop consultant provides
advantages beyond lower fees is up for debate. Parfitt argues that the advantages of one-stop-shopping for trustees is convenience and time-efficiency as you do not have to tell your story again each time a provider needs to be brought up to speed on your objectives. Secondly, “there are greater chances for success when all the parties are working in tandem, communicating freely and focusing on your objectives,” she says. Administration,
communication and compliance Interestingly
though, the efficiency with which information is communicated and
benefits provided is imperative, because it is these functions which
are “most visible to employees and their dependents,”
says Jonathan Sandford, director of marketing at Buck Consultants. With the burden of legislation weighing heavily on trustees’ shoulders, consultants can provide much value by ensuring administration and communication services are delivered to scheme members in a cost effective and proactive manner. This saves the trustee having to scramble for answers to members’ questions when the national papers run features on the implications of changes to pension regulations. Similarly, trustees should not be left to interpret technical bulletins or advice letters. “A plain English approach to communication is essential if the complex and fast-changing topic of pensions is to be communicated effectively to trustees, members and sponsoring employers,” says David Fripp, partner at KPMG Pensions. As
an added measure of security in terms of compliance, consultants
should produce checklists of all trustee responsibilities, timescales
for compliance and then continuously monitor their adherence, says
Sandford. Investment
strategy This
not only helps educate trustees on the various investment vehicles
and management styles but it gives them the tools with which to
make decisions. The reports are drawn up from regular research meetings
with all major providers of asset management services and through
scheduled annual or bi-annual meetings with a focus to discuss specific
issues. For
this style of consultancy to work, consultants have to spend the
time learning about the sponsor’s company culture, work processes
and goals with regard to investment strategy. KPMG’s Fripp makes the observation that: “Complex benefit structures are not only expensive to administer, but can obscure the value that members perceive and employers derive in HR terms. New and innovative thinking is key here, delivering scheme designs which members understand and appreciate, and which companies can afford and obtain value from, through improved retention and recruitment.” “We constantly review our clients’ arrangements to ensure that they are meeting the needs of all involved parties. This is as much a function of legislative and social change and the financial constraints of scheme sponsors as it is an observable shift in competitor practice,” says Sandford. In any given situation, consultants should be able to advise clients on whether they should take immediate action or adopt a ‘wait and see’ approach. William M. Mercer’s European partner in the retirement practice, Matthew Demwell summarises that overall what trustees need to look at is the consultant’s breadth of knowledge and experience – provided they have the communication skills to impart the knowledge; that the consultant understands the client’s drivers and knows when a packaged solution is the answer and when a bespoke design is required; and that the consultants on the project have among them the range of skills and experience to follow through to completion. –
Pensions Age August 2001 –
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