Choosing a pensions consultant can be complex

Choosing a pensions consultant can be a complex business, so Rachel Gordon explains why it pays to be picky

Like cups of coffee, pensions consultants come in various sizes – and as between Starbucks and the corner cafª, there are big differences in price and the range of products on offer.

When it comes to choosing a pensions consultant, employers have to weigh up a range of aspects, including what services are on offer, what the cost will be, and what experience the consultant has had of dealing with similar organisations and issues.

Although an employer may be perfectly happy with its current adviser, any organisation which has employed the same consultant for a number of years would do well to consider a formal review, even if just to ensure it is still receiving the best service to meet its needs. Most employers typically stick with an adviser for around five years, so change is not a frequent occurrence. Yet consultancies of all sizes are reporting a greater movement of business in the market.

One reason that could prompt employers to move is a decision to change the type of pension scheme on offer. Employers with a final salary plan, for example, may be looking for help with the scheme closure, buyout options or using a different investment strategy. The introduction of replacement pensions and the responsibilities now placed on trustees may also lead an organisation to seek help or to consider a change of consultants.

Thorny cost issues
Andrew Reid, head of corporate consulting at Watson Wyatt, says: “More employers are looking to be [increasingly] generous with their money purchase schemes and so need guidance. Or a consultant may be required to [train] trustees.”

When looking for a new adviser, it is crucial to know what services are needed. Larger consultancies can offer a comprehensive range, including taking a pension scheme off employers’ hands, while niche specialists may focus on specific areas such as investment.

Costs will vary depending on the services required. Medium-sized consultancies claim that larger firms can charge up to three times more, while at the top of the ladder it seems pricing is pretty similar. Matthew Demwell, a principal at Mercer Human Resource Consulting, says: “It certainly is not the intention, but I’ve heard clients say it almost seems like a cartel between the big three [consultancies] as our fees are all so similar.”

Watson Wyatt’s Reid agrees: “We’re competing for the same business in some cases and so [our charges] will tend to be there or thereabouts.” He points out that the larger the organisation seeking its services, the less likely it is to be concerned about securing the cheapest deal. “What matters is the quality of advice,” he explains.

Martin Scarrott, a consultant with the medium-sized pensions consultancy Mattioli Woods, says that cost should be a consideration for all employers and trustee boards. Mattioli Woods is classed as an independent financial adviser, which Scarrott claims can mean better value. He also believes smaller can be better when it comes to service. “It’s about getting to know a business. I am aware of cases where large consultants have intimidated clients. They will turn up at trustee meetings mob-handed with around 12 representatives. This is quite disproportionate and it would have been better to have simply sent two people.”

Organisations should ensure they find a consultant they feel comfortable with. Richard Harwood, head of the pensions strategy group at Grant Thornton, says clients need someone who will “talk to them as people and not come in with unrealistic promises just to win the account”.

He adds that employers should be wary of advisers claiming that they can make problems disappear by offering high-risk investment solutions.

Employers should also avoid basing their decision purely on the size of a consultancy. Adviser firms of all sizes have their pros and cons, and employers should not assume that larger consultancies are only willing to take on large clients. Mercer’s Demwell says: “[Smaller clients] may like the fact we can research specialist areas if necessary, or that we can offer packaged options and provide outsourcing for clients who don’t want to run their pensions in-house. We can offer complete solutions or we can go in to advise on a high level and be there to bounce ideas off.”

Clarity of information
Employers should also look at the range of expertise on offer. “We have people here to offer a range of skills, [such as those] who are excellent at administration and we try to ensure some younger people are working with clients too,” Demwell adds.

Organisations may also want to consider whether separate consultants should be used for the trustees. Hewitt Associates is unusual in that it has separate parts of the business to handle advice for employers and for the trustees. Consultant Lynda Whitney, says: “We think it provides more clarity to have two different advisers and it is better from a governance point of view, although we can share information if appropriate.”

When looking for a new adviser, a switched-on consultancy will put in time and effort to show what they are able to do.

Fraser Smart, a principal at Buck Consultants, says: “If we’re going to present, we invest a substantial amount of time and money into putting across what we do and how we can apply this to a particular business.”

He adds that employers or trustees should ensure that what they see is what they get. “My advice to any company looking to bring in a new consultant is to make sure they meet the people who will be working for them. Too often, consultants will bring in the ‘A-team’ for the pitch and then have less competent people working on the business. This is not good enough and it is a shame that there is such inertia that more employers do not challenge this behaviour.”

So even if an employer has a long historical relationship with a consultant, it is worth them exploring whether a change would make sense. And when making a decision, employers and trustees need to ensure there is plenty of strength in the offering for their money.

Advisers’ services

  • Actuarial services
  • Administration
  • Advising on bulk annuity buyouts
  • Advising on debt
  • Conflict resolution
  • Employee communication
  • Forensic accounting, for example, if a fraud is suspected
  • Investment services
  • Outsourcing
  • Pension protection assessment services
  • Project management
  • Providing a second opinion
  • Regulatory guidance
  • Setting up a new scheme
  • Trustee training
  • Wind-up services

Case study – AF Blakemore

AF Blakemore worked with pensions consultancy Mattioli Woods when it decided to wind up its defined benefit (DB) pension scheme.

The organisation, which employs around 5,000 people and operates in a number of areas, including wholesale, food distribution, shop fitting and printing, as well as distributing to the SPAR chain of which it owns around 200 outlets, has worked with the consultancy for a number of years.†

David Pannell, finance director and trustee at AF Blakemore, says that, initially, it hoped it could save its DB scheme. The company put in a seven-figure contribution, changed the accrual of future service entitlements and introduced higher contributions for the firm and members. It also changed its investment strategy.

The company wound down the scheme, which is now closed to members, and outsourced the administration and actuarial functions to reduce costs and improve service. It now offers a money purchase scheme for its employees.

Lyn Gibbons, personnel administration manager at the company, says: “Organisations need to take action to ensure deficits are managed and those responsible for administering benefits can explain the situation to employees. We have found [our consultants] extremely helpful in this respect.”