The FT is not known for having a laugh but I suspect that Chris Flood was snickering a little when he composed this little beauty
I hope they don’t mind me sharing a great article that exposes the extraordinary arrogance of one of the biggest pension consultancies in the world. Far from accepting the criticism thrown at it in the FCA’s Asset Management Market Study, Willis Towers Watson (WTW) has gone all pedagogic on us!
If you enjoy irony, read on – and if you haven’t read the section of the FCA Asset Management Market Study that deals with WTW, Mercer and Aon, I’ve put the summary at the end of this blog. The sections in italics are directly copied from Chris Flood’s article!
Willis Towers Watson plans to build a team of up to 60 staff to run a new low-cost asset management service it believes will reduce costs significantly for pension funds.
Eh- I thought that’s what their customers were paying for them to do?
Twenty-five staff have already been hired for the service, called AMX, which launches in the UK on Monday following a two-year development period.
Eh – two years to find out there’s far on the bone – this blog’s been saying not much else since 2009!
The unit will be a one-stop shop for large investors, where they will be able to appoint and monitor external investment managers, auditors, lawyers and other counterparties, such as custodians that are responsible for the safekeeping of assets.
The “one stop-shop” from a consultancy that’s been advocating diversification?
The consultancy believes it can achieve substantial cost savings of between 40 basis points and 100bp a year for pension funds, family offices and charities if it acts as the sole overseer of the wide range of professional services these investors currently buy separately elsewhere.
So concentrating your purchasing through the organisation that’s been letting you down decade on decade, is a smart move?
Tell us something the FCA haven’t been telling you!
On profitability, we find that: Average profit margins are around 35% for the period 2010 to 2015 and all the asset management firms in our analysis earn a return on capital employed above our estimate of the cost of capital. When adjusting profitability to reflect the fact that employees of asset management firms can be considered to be sharing in the profits of the firm through wages and bonuses, the estimated profitability of asset managers is even higher. -FCA Asst Management Market Reiew
Tell me why WTW have been allowing this situation to persist- ALL THESE YEARS.
“Other industries have been transformed by having an open marketplace but asset management has yet to embrace this opportunity. Companies such as Amazon offer both buyers and sellers a better deal,” said Oliver Jaegemann, global head of AMX. (https://www.linkedin.com/in/oliverjaegemann/)
And who has been holding back an open marketplace in the UK, Willis Towers Watson ?
The timing of the launch is notable as the UK regulator is busy evaluating how investment managers can improve cost controls.
and wants to refer the said WTW to the Competition and Market Authority!
The regulator is also examining the influential role investment consultants, including Willis Towers Watson, play in the UK, and the potential conflicts of interest inherent in their business models.
Including the behaviour of WTW in establish vertically integrated fiduciary management products that blur the role of consultants and asset managers.
Mr Jaegemann said too little had been done to address the operational costs incurred by smaller pension schemes that were “all too often” unable to get the same deals as larger rivals from service providers.
Fortunately for them, smaller pension schemes can’t afford the fees of the big three and get the services of firms like mine who really do care about driving costs down.
When we demand better terms for smaller clients , we are reminded that the large consultancies don’t get involved in “haggling”.
If you want to see an inefficient marketplace, go to the exhibition hall of a PLSA conference and watch how well the large consultancies and the asset managers get on.
“Most pension schemes run a portfolio of 10 or more investment managers at any given time. This amplifies the inefficiencies as scale benefits are lost in the current system,” he said.
and under who’s advice did this happen – surely not WTW’s???
Here’s the summary of the FCA’s findings into the behaviour of investment consultants
We looked at the role of investment consultants and their impact on outcomes for institutional investors. We find that:
- the investment consultant market is relatively concentrated and switching rates are low
- on average, consultants are not able to identify managers that offer better returns to investors. However, the manager selection process ensures that asset managers meet minimum quality standards and reduce operational risk for investors.
- consultants do not appear to drive significant price competition between asset managers. Consultants do not place a lot of weight on manager fees in their ratings, although in some instances they can help investors in negotiations on price.
- the advice provided by investment consultants on asset allocation and investment strategy is significantly more influential in terms of outcomes than the advice on manager selection. However, many institutional investors struggle to monitor and assess the performance of the advice they receive. There is no standardised framework to assess the quality of advice or help investors assess whether they are achieving value for money.
- for some investors, fiduciary management offers a way to pool their money to achieve lower costs and get wider exposure to different managers and solutions. However, we have concerns about conflicts of interest that arise in fiduciary management, which is increasingly offered by investment consultants and fund managers. These issues are exacerbated because investors cannot assess whether the advice they receive is in their best interests.
- performance and fees of fiduciary managers appear to be among the most opaque parts of the asset management value chain. A lack of publically available, comparable performance information on fiduciary managers also makes it hard for investors to assess value money.