What makes for a good pension investment consultant?

02 March 2022

For a Defined Benefit (DB) scheme to achieve and maintain a self-sustaining level of funding, it must have a clear and comprehensive investment strategy delivered in a timely manner with regular monitoring.

To achieve this the scheme’s investment consultancy firm must have:

  • The necessary knowledge and understanding to devise the correct strategy,
  • The right tools and technology to monitor the scheme’s assets and liabilities and ensure a smooth and cost-effective implementation of the strategy with “best in class” providers.

In short, a good Investment consultant should be proactive and dynamic, with the necessary skillset to anticipate and respond to the scheme’s funding levels in periods of significant market volatility or uncertainty.

They should also seek to ensure that the scheme obtains best value from its fund managers.

However, it is important to remember that the journey towards a sustainable level of self- sufficiency is an evolving one.

Advisers who were put in place at the beginning of the journey may no longer be fit for purpose if you hit a prolonged period of turbulence or are blown significantly off course.

Changes in investment consultancy personnel may also be a cause for concern if badly handled.

Change may be inevitable, but consultancy firms need to ensure that any significant change in their team represents “best fit” for the scheme and have been openly discussed and agreed upon before the event, not shoe-horned in with scant regard to the sensitivities of the trustees and other key advisors.

Why review your investment consultant?

The UK Pensions Regulator (TPR) emphasises a need for schemes to regularly review and manage their advisers’ performance.

It is important to remember that in the vast majority of cases a review of a scheme’s investment consultant will not result in a change of personnel or firm.

What it should do is clarify the level of service and advice expected and build in criteria to allow the provider’s performance to be measured in a clear and logical manner over a mutually agreed timescale.

The Review Process – What to Consider

The most important point is to be clear about the scheme’s investment strategy.  This will allow the trustees to define what is expected of the investment consultant and agree on how their performance is measured.  As part of this progress, the trustees should look at the progress made towards their definition of “self-sufficiency” over pre-determined time periods.

Next, the trustees should review and understand:

  • What has worked well with the current adviser and what hasn’t.
  • How well the current advisers have worked with the other scheme advisers.
  • Where the adviser has added “real value” to the scheme.

This will help to ensure that the scheme does not lose the features that matter, whilst identifying areas of concern as part of the overall review process.

The trustees should reflect on whether they believe their existing investment consultant represents “value for money” and review how their costs have been split across the services they provide.

Finally, there is a need to consider where the trustees  are on their journey towards an “end game” and whether the existing consultancy firm has the necessary skillset and approach to tackle the next phase.

If at the end of the review process, the trustees conclude that the existing provider’s service fell short of what it could reasonably expect or require on a forwarding looking basis, then the trustees should consider a re-tender process.

The Re-Tender Process

The main criteria for any re-tender process is to ensure that sufficient time is allowed.  Too many tenders set exceptionally short timescales for responses which often lead to suboptimal responses.

  1. When briefing new potential consultants, it is important for the scheme to be as open as possible about sharing information – this will give all candidates the best opportunity to identify the right approach.
  2. Be consistent in the questions asked and the criteria on how the answers are reviewed.
  3. Meet the proposed team that might be appointed and spend time understanding their modus operandi and skills.
  4. Ask if they would propose changing the existing investment strategy to help meet the scheme’s long term objectives and why.
  5. Include a template fee analysis so that a direct comparison of expected costs can be made.
  6. Ask for client case studies which highlight value added for schemes that have faced similar issues to your own scheme.

Before any new appointment has been finalised, the trustees should:

Follow up on any client references which have been provided as part of the review process and take the time to visit the offices of the preferred firm, subject to that being possible, to conduct a more thorough interview of their credentials.

This should include meeting the full client team and not just the senior personnel who will be working with the Scheme. It will also allow proper time to view and interrogate the tools available to support delivery.

Using an Independent Evaluator in Adviser Reviews

Often an Independent Evaluator can help you ensure Impartiality. They will typically have strong industry knowledge with a good overview of the investment consultancy market, having worked with various investment consultants across multiple firms and have tried and tested review processes in place.

They can also take away the “heavy lifting “of the review process, coordinating with potential candidates to ensure consistency whilst providing the appropriate framework for the whole review process.

In summary, regular, well run adviser reviews are essential for the good governance of a scheme and to ensure that it remains on course for its end game, despite ever changing market conditions and financial headwinds.

How ZEDRA Can Help

Whilst every Defined Benefit (DB) scheme is unique, both in terms of its make-up and benefits, they all have one overarching aim: to achieve a sustainable level of funding which enables them to meet member obligations in full.

To achieve this, schemes work closely with their investment consultant who play a pivotal role in advising the scheme trustees on investment strategy and in procuring and monitoring asset management services.

ZEDRA Inside Pensions was established in 2008 and represents pension schemes with over £100 bn in assets.

With 38 trained pension secretaries, we work with more pension scheme advisers than any other independent pensions firm and provide a truly independent and impartial review of Scheme advisers.

To find out more or to discuss how we can help you with your Pension Scheme, please contact Rachael Fortescue or Judith Codling.

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