Consultants Face the Axe as Pensions Start Shake-up

(July 24, 2013) – A swathe of consulting firm contracts could be about to be torn up as small and medium-sized pension funds have begun reassessing how they make their investment decisions, a report by SEI has shown.

More than half of a cohort of UK corporate pension funds with assets up to £1 billion felt their current governance structure did not allow them to take advantage of market conditions and thereby improve their funding level.

Some 65% of respondents planned to overhaul their model by reviewing their investment consultant within the next three years. More than a quarter intended to do so within the next 12 months.

“The results of this poll confirm that pension trustees and professionals are operating in an extremely challenging environment,” SEI wrote. “Faced with unrelenting volatility, mounting deficits, and an increasingly fast-paced investment environment, trustees are starting to recognize they may need a different model to meet their scheme funding goals.”

The challenging economic environment has required bold fiduciary decisions, SEI said, which many trustees couldn’t make due to lack of resources. This has motivated an increasing number of schemes to employ fiduciary managers or delegated consultants, the survey found.

However, almost a third felt their consultant did not offer good value for money. A number of respondents cited a lack of transparency around the costs of traditional investment consulting.

Reducing the overhead and service costs associated with running a pension scheme was quoted as a prominent concern for trustees.

Less than a third of asset owners use funded status to benchmark investment consultants, while the remainder focused on asset performance.

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