BAC Briefing

July 2015

Beginner’s guide to reviewing advisers

Whether it is driven by a desire for good governance, concerns about fee levels or poor quality service, carrying out a formal review of scheme advisers is becoming increasingly common.

In this BAC Briefing we look at how to design a review process which:

  • minimises the disruption to the day-to-day running of the scheme
  • creates a level playing field for all candidate firms bidding for the work
  • maximises the likelihood of the right firm being appointed
  • ensures the appointed firm has a clear understanding of what is expected of them.

The principles we describe below apply equally to any type of adviser review, whether the appointment is by the company or the trustees.

When should you carry out a market review?

If your scheme has a trusted adviser who delivers a good quality service, you may feel it is questionable whether a review process would be of great value at any particular time. However, even in this situation there is a risk of the relationship becoming too comfortable, with the result that bad practice gradually develops. This could emerge through problems with the budgeting process, a team structure that becomes less appropriate over time or a lack of fresh thinking and innovation.

…schemes should carry out a formal adviser review at least once every 5 to 6 years…

Therefore, for good governance reasons alone, schemes should carry out a formal adviser review at least once every 5 to 6 years. This is the only way to ensure that the trustees or company have a good understanding of what other providers could offer and to see whether a fresh perspective might add value.

However, more fundamental issues can arise with the adviser relationship over shorter timeframes, for example unpleasant fee surprises, changes of key personnel or a deteriorating quality of service. In these cases, it is best to first try to resolve the issue directly with the adviser. If the relationship is strong and the adviser values that relationship, most such issues can be resolved without needing to escalate them to a formal review.

How to prepare?

Once you have decided to carry out a formal adviser review, the starting point is to articulate clearly to the stakeholders (both trustees and key company contacts) why a review is needed and what you are aiming to achieve from it. At the outset, you will want all of the stakeholders to have bought into the need for the review and agreed a common set of objectives, or success criteria. This may take some time to achieve but it is vital to the success of the whole review process.

The other key element of preparation for the review is to design and plan a robust review process.

A typical process

In the table below we set out the main stages that a typical review process will include, together with some comments on issues to consider for each stage.

Stage Comment
Decide on long list of candidate firms
Probably 5 or 6 firms
Issue an invitation to tender (ITT)
Identify contacts at each firm
Fact-finding stage
Ensure diaries are cleared for fact-finding meetings and include these dates in ITT
Written submissions
Limit size of submissions to a certain number of pages
Develop short list of candidate firms
Probably at least 2/3 firms (one of which is likely to be the incumbent)
Presentations by short listed firms
Make sure presentation dates are included in the ITT
Select new adviser
Need to agree their terms of engagement

Things to remember

Long list of candidate firms
As in any industry, consulting firms are configured differently to meet their clients’ many and varied needs, ranging from top-end blue chip advisers with a global presence through to more cost-effective advisers with a simplified offering. When deciding who to put on your long list, you need to consider carefully the reasons for the review and your stated success criteria. It is vital that the firms invited to tender all have the potential to be a good fit with those criteria.

Invitation to tender (ITT)
Try to keep the ITT short by covering essential information only. To be most effective, the candidate firms should only be asked a small number of key questions, the answers to which will help provide potential differentiation between the firms.

Fact-finding stage
Taking part in a tender process costs consultancy firms significant amounts of time and money. As a result, they are unlikely to take part in the process unless they feel they have a realistic chance of winning. Indeed it is quite common for major consultancies to decline an invitation to tender if they conclude the scheme in question is not serious about the review, for example if it is simply using the process to put pressure on the incumbent adviser.

This means that the fact-finding stage is critically important, first to make sure candidate firms know that you are serious about the process and secondly to give them sufficient understanding of what you are looking for to prepare a focussed and quality proposal. To kick off the fact-finding process, candidate firms will want to meet with some of the key stakeholders to discuss the background and cover various technical questions.

Irrespective of the thoroughness of the ITT and the fact-finding meeting, candidate firms will have follow-up questions and you need to consider how you will handle these. It is very important to maintain a level playing field in terms of information-sharing throughout the process, so that all firms have access to all of the questions and answers. This will ensure that the tender responses reflect the quality of the firm, not simply which ones asked the most pertinent questions (an important skill but not the only one you should be testing). The use of a dedicated tender website can help significantly with this stage.

Written submissions/short listing candidate firms
If the ITT has been drafted well, the written submissions should provide clear evidence of what the different firms have to offer. To evaluate who should be shortlisted, you need to have prepared a scorecard, based on your stakeholders’ success criteria. This should have been agreed internally before the ITT is issued. A well designed scorecard will help you identify your shortlist fairly easily. Again you should agree at the start of the process who will be asked to score the written submissions, so that all stakeholders are adequately represented in the decision making.

Presentations by short listed firms/selection of new adviser
You need to give the short listed firms a clear steer on what you want them to cover in their presentations, who should attend and timings. This is important so that you are able to compare like-for-like presentations. For this stage a scorecard is less likely to be of value as more subjective factors that emerge through the presentations will probably be key in your decision making, for example the chemistry between individuals. It is also important that you agree at the outset who will attend on behalf of the stakeholders, i.e. which trustees and company representatives.

Summary

A successful adviser review is all in the planning – be clear why you are doing the review, make sure your stakeholders buy into the success criteria and design a well thought-through process. Part of the value of carrying out a review is the opportunity to hear fresh thinking and a new perspective on your current issues, so you should ensure you go into the process with an open mind.

For more information on how bac can support you cost-effectively with an adviser review, please contact us.

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