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.

15 November 2019

In the news this week, worrying results from pension scam research, a longevity swap conversion and CPI at its lowest level for nearly three years.

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