Nuts and bolts
What are the costs involved?
Consultancy costs depend on the size of a client organisation and the nature of the services. The fee charged depends on the type of project and the time it takes to complete. Consultants either charge a fixed annual fee or a standard annual fee plus ad-hoc fees as additional work comes up. An increasing number of consultants work for commission based on insurance or pensions broked (paid for by employer, employee and/or providers). Others use a combination of fees and commission.
What are the legal implications?
These are governed by the contract between consultant and client. If there is a complaint from an employee or employer, it can be addressed through the Financial Services Authority’s complaints procedure.
What are the tax issues?
There are no tax issues concerning the use of employee benefits consultants.
Focus on facts
What are employee benefits consultants?
Consultancies advise organisations on a full range of benefits and strategies. They can design benefits schemes, communicate them to employees, evaluate what is on offer, and deliver benefits packages covering everything
from pensions to bikes-for-work schemes.
What are the origins of employee benefits consultants?
Consultancies started in the US focusing on pensions, then grew to encompass healthcare and risk. Many of the UK’s largest consultancy firms grew out of actuarial or accountancy practices, and others emerged from brokers,
independent financial advisers (IFAs) and software businesses.
Where can employers get more information and advice on employee benefits consultants?
Employers can get information from the Association of Consulting Actuaries (020 3207 9380) and the International Employee Benefits Association. Consultants may also belong to bodies such as the Society of Pensions Consultants (020 7353 1688) or the Association of Medical Insurance Intermediaries (012 0673 1181).
In practice
What is the annual spend on employee benefits consultants?
There is no organisation dedicated to collecting these figures, and the private nature of many businesses means no
accounts are available.
Which benefits consultants have the biggest market share?
The three biggest firms are Aon Hewitt, Mercer and Towers Watson. Others include: Alexander Forbes, AWD Consulting, Bluefin Corporate Consulting, Buck Consulting, Capita Hartshead, Enrich, Hay Group, Heath Lambert Employee Benefits, Hymans Robertson, Jelf Employee Benefits, JLT Benefit Solutions, Johnson Fleming, Lorica Consulting, Portus Consulting and Punter Southall.
Which have increased their share?
No exact figures are available, but mergers mean Towers Watson and Aon Hewitt are now the biggest players in the market.
Consolidation, mergers and evolving employer requirements have changed the landscape for employee benefits consultancies over the past year, says Jennifer Paterson
After two mergers involving four of the UK’s biggest benefits consultancies, the market has changed significantly in the past year. First, Towers Watson was formed from the merger of Towers Perrin and Watson Wyatt in January, then Hewitt Association merged with the global consultancy arm of Aon Corporation in October to create Aon Hewitt.
The Towers Watson merger brought together two similar organisations, but Aon Hewitt combined Aon’s risk benefits practice with Hewitt’s HR actuarial firm. Martha How, reward specialist at Aon Hewitt, says: “It is about generating synergy from bringing together two talent pools.
In the case of Aon Hewitt, there was little overlap between what we did, but when you put them together, combine client bases and capability, the synergy is hugely exciting.”
Employee benefits consultancies typically trace their roots back to the healthcare and risk markets, actuarial practices or independent financial advisory (IFA) firms. But whatever their beginnings, most have increased their areas of interest and are looking to expand their services to keep up with market changes. For example, the fall in the number of defined benefit (DB) pension schemes means those with a strong DB actuarial base need to diversify.
How says: “The change in the pensions climate will drive consolidation and people thinking strategically about driving the business forward. We still have armies of people doing work around DB pensions, but will they be doing that in 10 years’ time? I suspect not.”
Economic downturn
The economic downturn has also thrown up challenges for consultants, which may have contributed to consolidation in the market. Jason Rayner, commercial manager at Jelf Employee Benefits, says: “The traditional business model is that consultancies were the biggest global companies looking to deal with big [employers]
with operations in lots of countries. The recession has changed the way they operate slightly.Ӡ
“It has been a lot harder for the old consultancies to write business at that very top level. It has forced them into a position where they are trying to help businesses that are perhaps a lot smaller than those they would have helped in the past. When things get tough, you have to look in places you would not normally look.”
The number of employers offering benefits globally has also grown, so consultancies have had to follow suit. How says: “It means the global players are increasingly having a stronger story to tell. It also means consultants have to be humble and acknowledge they do not know everything about taxation in Kazakhstan and they need to leverage the capabilities of their teams rather than deliver everything from a UK or US base. It is asking different things of consultants; they may have the capability globally, but may have to work in different ways.”
There has also been a trend for employers to streamline their benefits administration by using a single consultancy rather than several. Jelf’s Rayner says: “Consultants are having to get into each other’s spaces. Employers want a
broader solution, forcing consultants to push into executive compensation or pensions.”
Some benefits providers and insurers have also been cutting out the middle man by going directly to employers or moving into consultancy. Dick Stratton, head of development for EMEA at Mercer Health and Benefits, says: “It
has begun to happen quite steadily in the past 18 months. Insurers still get a lot of their business from consultancies, but if insurers start competing, they will not need consultancies.”
When deciding which consultancy to work with, employers must consider a number of factors. “The challenge for employers is to find the right type of expertise for their circumstances,” says How. “There is a huge variety in employee benefits consultants. It can be very difficult to decide which firm best suits their needs. If a consultant cannot provide several reference sites, the employer should not work with them.”
Legal compliance
Employers should ensure their consultant is either well versed in legal compliance or has access to a lawyer to ensure all benefits comply with tax and special security regulations. Chris Wilson, director of Rewarding People, says: “HM Revenue and Customs is producing considerable amounts of information around benefits and it
is important [employers] are aware of any implications for their contracts of employment.”
The consolidation of big benefits consultancies, combined with movement among smaller players, means the traditional consultancy model must evolve, says Chris Noon, partner at Hymans Robertson. “If you look at the last 20 years, it is quite compliance-based, traditional work. That is changing rapidly. We are now seeing a consulting model that is more similar to management consulting or an accountanttype model. Employers are more demanding about real added value and consultants are straining to respond to that. Consulting is an easy market to enter – you just have to be smart, capable and know your stuff.”
Read more buyer’s guides