The big three actuarial pension consultancies , by which I mean Mercer, Willis Towers Watson and Aon have a dilemma. They all are funders of master trusts (Mercer funds two) and Aon has its own GPP to boot. WTW’s Lifesight looks like it is heading to scale , though it has but a handful of large participating employers, Aon has a performing master trust that is still sub scale and Mercer have the Mercer master trusts that is there to cannibalise the Mercer DC book and offer Marsh Mac a workplace product for their GI clients (Now).
As consultancies, they need schemes to consult on, as consolidators, they need to eat their schemes. The more the Government presses for consolidation the better for the master trusts (not the GPP) and the worse for the DC consultancy business.
Aon’s consultancy team came up with a brave report this year that tries to breathe live into its offering
the report suggests that consultants can add ongoing value in five areas
But it’s hard to see how trustees are going to get their sponsors to pay fees for any of this if the end of the scheme they run is nigh.
The Government is saying that the vast majority of single employer DC schemes, some master trusts and perhaps all Workplace GPPs , would be better consolidated into a handful of £50bn + schemes that can have the clout to buy better assets and deliver better VFM.
It is hard to see a future for traditional DC consultancy as one of the advantages schemes such as Nest can claim is that they have the internal resource to manage the issues listed above.
And as demand decreases , so is the resource available to the consultants.
Last week we heard from XPS on its Xchange service that looks to provide a secondary market for the private assets that the Government wants to insert into DC schemes. But it is hard to see how such services can compete against the likes of Ardian and American firms coming over here with some serious intent.
XPS is going to diversify and find new opportunities. But what does this mean for its existing consultancy business. Many of its large DC clients are now part of the SEI master trust having been put into the Nations Pension – a master trust set up and sold to an American asset manager.
Barnett Waddingham, Hymans Robertson LCP , Isio and to a degree First Actuarial are not conflicted from running fiduciary DC solutions. Meanwhile trustee firms like IGG , Zedra CCTl and Vidett are stepping up a “self-sufficient” governance service for DB and DC trusts.
With their clients consolidating and with one stop governance services available, the traditional services of DC consultancy look increasingly irrelevant.
