An industry under pressure

The market is dominated by three companies. Such concentration will likely lead to at least two issues.

It obviously means there is a real danger of poor price competition and long-lasting, cosy client relationships developing, with little market testing to change the status quo.

An even more troubling thought is that there is a risk of too many pension funds being given the same or similar investment advice, which could conceivably have contributed to some of the more recent booms and busts.

Consultants are often quick to assure that their solutions are bespoke, and this might well be the case for large clients. However, at the smaller end – that is the bulk of schemes – this will be difficult due to resources, giving larger schemes a further edge over their smaller peers.

Many trustees readily admit that investment advice from consultants heavily influences a board’s decision-making – particularly so among smaller schemes. Lay trustees can be overwhelmed by jargon. A further criticism is that the models on which recommendations are based are sometimes presented as truth.

Despite these concerns, the big question is how else trustees, most of whom are not investment experts, can make appropriate decisions. Governance remains a problem that is not easily solved where so many interest groups vie for a slice of the cake. It is one reason why pooling and insourcing have risen up the agenda: having expertise in-house implies alignment of interests.

Of course, it comes with its own difficulties, as State Street’s Andy Todd explains, because alongside control, risk is also brought in-house. However, this can be managed. And so it is likely to be the pooled investors that will be at the forefront of developing new governance models, which should ultimately lead to better member outcomes.

Sandra Wolf is editor at Pensions Expert. You can follow her on Twitter @SandraCWK and the team @pensions_expert.