As most employers continue to struggle with the economic climate, both trustees and their sponsors are looking for ways that the pension scheme can play its part in reducing costs from the business. While changes to areas such as pensionable salaries, scheme design and recovery plans represent the most substantial savings, one area that is increasingly being questioned is adviser fees, and to what extent they can be trimmed in the current climate.
While it is no doubt the case that in such difficult times advisers are sometimes needed more than ever, the good news is that there remain plenty of areas that can yield cost savings, and all trustees and employers should be challenging their various advisers to come up with some options. I believe there are a selection of areas where trustees and employers should focus their attention in order to make savings.
Focus on value
If your adviser can’t describe the value in their work, then question whether or not you should be doing it. Certain tasks are compliance requirements (see below) but many are not. So tasks should be justifiable if a pension scheme member or finance director asks why they are being done.
At the same time, some tasks are very valuable, and it may be worth increasing spending in these areas if the value created is sufficient. You do not want to miss the opportunity of saving £10, just because you did not want to spend £1. For example, implementing salary sacrifice can save more during the first year than it costs to put in place. At the same time, some exercises may have an important feel-good factor, even if they don’t add measurable financial value.
Another way that advisers can support you is if they are negotiating with a third party provider on your behalf. For brokers, investment consultants and other intermediaries managing providers, there is considerable scope for employing them to find and secure value for you.
Focus on compliance
Cost-cutting can lead to cutting corners, and where compliance tasks are involved that can be dangerous. Make sure that your consultant is open and honest about what is required for compliance purposes, and what is window dressing. For example, by all means produce glossy documents to meet compliance needs, but recognise that this is your choice, and is something you can chose to scale back on in difficult times.
Focus on quality
In order to ensure that you achieve maximum success from the projects you do undertake, maintaining quality is key. In certain high risk activities it is obvious and essential to maintain high quality. But quality is also important in basic tasks such as scheme administration – compromising on quality will come back to haunt you when the members start to complain, or claims are made against the scheme for benefit errors. Poor quality can cost more in the long run than was saved in the short term.
Focus on delegation
Every task has a number of alternate resources that can be used, including your expensive lead consultant, a more junior colleague, or an internal resource. By ensuring that tasks are delegated to the right level you can ensure that spend is well managed. That may mean your internal team taking on a few more roles to limit external spend. The trick is to make sure that you have the right people doing the right job, while seeking expertise when it is required.
Focus on you
Make sure that your consultant has your interests in mind. For every idea proposed, ask the question “What does this do for my business or my scheme?” Remember that it is you, as the client, that sets the requirements of your adviser, not your adviser who sets it themselves.
In conclusion, it is clear that there are numerous ways to save on adviser fees. The key principle, however, is to ensure that the savings are genuine rather than missing opportunities or saving trouble for later. A clear focus on value, compliance, quality, delegation, and importantly yourself, will help you save on adviser fees without jeopardising the running of your business and your pension scheme.
- Paul McGlone is a principal and actuary at Aon Consulting