If you read nothing else, read this …
• Employers choosing pension consultants should start by holding a beauty parade to determine which firm is most suited to their needs.
• The Society of Pension Consultants holds a comprehensive list of all of its members.
• Firms should find out how costs will be structured and whether there will be any additional charges for certain types of work.
The cut-throat world of the pensions beauty parade highlights a disturbing image of pensions consultants fighting over employer crumbs.
Employee Benefits/Barclays Pensions Research 2004 shows that in preparation for upcoming pensions simplification more than a quarter of organisations (26%) plan to review their current pensions procedures, systems and administration. So they will want to be sure that they are happy to do this with the consultant they have appointed.
One of the difficulties for employers when they decide to either change their pension consultants or appoint them in the first place is differentiating between consultancies. One place for organisations to start is the Society of Pension Consultants (SPC). This body, which was set up to give consultants a chance to discuss issues, has a list of all of its members on its website.
The Occupational Pensions Regulatory Authority (Opra), which looks after the pension rights of staff, recommends that all advisers are either associates or fellows of the Pensions Management Institute, or members of their own professional body. It has also published a guide on the necessary rules and regulations that employers and pension scheme trustees must adhere to when appointing consultants.
However, finding suitable providers of such services is often not the main problem; many employers are reluctant to change consultants. Ian Luck, a director at independent financial advisers Smith & Williamson, says: “There is an inertia involved in changing because sometimes it’s better the devil you know.”
The fact that the pensions world is based around relationships c0an also cause problems. There is the danger that the old boys’ club mentality is still prevalent. Tales where Edward The Employer chose Chris The Consultant to look after his new pension scheme following a round of golf and a couple of bottles of red wine still abound.
John Mortimer, secretary at the SPC, accepts that the industry is reliant on relationships. But he says that this can often be beneficial to employers. For instance, lawyers can recommend suitable consultants for certain projects without damaging existing relationships.
Organisations should be asking certain questions to determine the suitability of particular advisers. Cost, of course, is essential. Firms need to know how this is being structured; whether it is based on the cost of the consultant’s time, on commission, or whether there is a fixed fee. Luck says more of his clients are choosing fixed fees because it helps them control their budgets.
Tom McPhail, head of pensions research at IFA firm Hargreaves Lansdown, says that firms should also ask if they are likely to be charged for special projects such as getting a scheme ready for any A-Day changes. “The cost has to be tailored to reflect the specific work that is being undertaken. If you’ve got a firm of 200 solicitors all in one office on an average income of £50,000 a year, that’s a very different proposition to 1,000 employees on an average income of £18,000 spread across 20 locations.”
He also doesn’t believe the quality of service is responsible for that many consultant changes. “When you set a scheme up you hope that the scheme and the relationship you’ve got with your advisers is going to run for a number of years. [The tender’s] a really painful process and you [don’t] want [to be] revisiting it every few years.”