Benchmarking fees

When advisers are first appointed, great care is taken to put in place the right shape of team, so that work can be delivered in the most efficient way possible. Time is also taken to discuss the client’s work needs in detail, i.e. type and detail of advice, frequency of reporting and style of materials, etc. However, over time team members leave or become more senior and a client’s requirements change. The problem is that neither the client nor the adviser always spots this.

Often bac is brought in because there is concern that the adviser is charging too much for work that does not feel best in class. The paradox is that the adviser in question is normally a leading firm in the industry, so what has gone wrong? Usually it is a combination of reasons….

We were asked by the trustee board of a £2 billion scheme to help them review the value for money they were getting from their scheme actuary firm. The focus was not simply on reducing fees, but also giving the trustees confidence that the service being provided was consistent with their adviser’s charges. We started by spending some time with the trustees understanding the complexity of the scheme and how they worked with their scheme actuary firm.

We benchmarked the fees against industry norms and provided the trustees with a written report of our findings. The benchmarking revealed some potential fee issues, particularly in terms of meeting attendance and the most recent funding valuation. There was also a lack of transparency and very few fixed fee components within the current relationship.

We provided the pensions director and chair of trustees with a basic “plan of attack” for how to address these fee concerns with their advisers. Whilst some advisers can be reluctant at first to engage in a discussion about restructuring fees, most will respond positively if they feel that fees could put the relationship at risk (and our involvement can be helpful in ensuring the advisers take the challenge on fees seriously). That is what happened in this case, with the scheme actuary firm sitting down to restructure not just their fees but also their team and the way in which they delivered their services.

The overall fee reduction was around 25%, with a much higher proportion of fee spend being genuinely fixed. The review also led to improvements in the scheme actuary’s service, including the provision at no extra cost of:

  • dedicated project management services
  • “blue sky” workshops to help the trustees understand the latest thinking and ideas.

20 November 2020

In the news this week, the second Lloyds judgement says that historic transfer payments need to reflect GMP equalisation, the Pension Schemes Bill moves back to the Lords, TPR gets tough on AE compliance, the FCA surveys DB transfer advisers again and another buy-in is completed.

Pensions Arena October 2020

This quarter’s Arena has a summary of our recent Pensions Perspective, “Endgame planning comes of age”, which looked at how long-term funding and investment plans are evolving and why companies are increasingly taking the lead in designing an endgame strategy. It also shows all the usual financial and investment analysis for the quarter ending 30 September 2020.

Endgame planning

Journey plans or glide paths may have been around for a long time but they’re at the heart of the Regulator’s proposed new funding code. In this Pensions Perspective, Leonard Bowman looks at how long-term funding and investment plans are evolving and explains why companies are increasingly taking the lead in designing an endgame strategy for their schemes.

Pensions Arena July 2020

This quarter’s Arena has a summary of our recent Pensions Perspective, “Emerging from lockdown”, which looked at how best to tackle the most common pension issues which companies are currently facing. It also shows all the usual financial and investment analysis for the quarter ending 30 June 2020.

Emerging from lockdown

As we keep hearing, we are living in unprecedented times. However, as we turn our attention to the future, what does the “new normal” mean for defined benefit pension schemes? In this Pensions Perspective, Leonard Bowman considers the most common pension issues that companies are facing and how best to ensure that the company approaches these on the front foot.

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