Leading benefit consultancies have reported more small to medium-sized schemes are bundling services under a single provider in response to a growth in legacy arrangements and to benefit from economies of scale.
An increasing number of schemes with assets of less than £500m are choosing to combine investment consulting, actuarial services, covenant assessment and in some cases administration under one company.
Paul McGlone, partner at consultancy Aon Hewitt, said the reasons for this are a combination of cost-savings as well as the time smaller schemes have to make decisions.
As schemes become legacy arrangements, sponsors want to park the scheme and have as little as possible to do with it
Gerard Francis, Towers Watson
“You can turn up to a meeting with one person who can tell you about lots of things,” McGlone said.
He said that while having multiple advisers may result in more views around the table, those views are not necessarily better or worse.
“You then have to find a way of understanding those views and deciding what you’re going to do about it,” said McGlone.
An increasing number of legacy defined benefit arrangements have also led to the growing demand from schemes to group services under one provider, consultants said.
The number of DB schemes closed to new members and future accruals rose to 35 per cent in 2013 from 31 per cent the previous year, according to the National Association of Pension Funds' 2013 annual survey.
Gerard Francis, senior consultant at Towers Watson, said: “It is certainly an increasing trend as schemes become legacy arrangements, as sponsors want to park the scheme and have as little as possible to do with it.”
Are schemes receiving 'best-in-class' advice?
Raj Mody, head of pensions at financial service provider PwC, said a balance needs to be struck when considering combining services under a single provider.
Mody said there is “inevitable efficiency” in having multiple services under one roof since it reduces the number of contact points a scheme needs.
But he added: “There can be clear limitations from doing that because you’re not necessarily getting the best-in-class advice for the particular job or assignment in hand.”
Mody suggested schemes could retain a single company to provide routine scheme management services but look elsewhere if they think their "day-to-day business-as-usual adviser" is inadequate, particularly if that adviser is more compliance-focused.
Steve Delo, chief executive at professional trustee company Pan Trustees, said there can be competitive tension that can be useful when having different advisers – however, on the whole, views tend not to be that different. “You can get point-scoring that can be a problem with different advisers in the room,” he added.
There is a clear money-saving benefit to bundling services together. McGlone said: “It costs less to run a number of advisers through one firm, whereas if you have lots of different firms it costs more to do that."
But Francis said there is a threshold when this may not always be the case for schemes. “It clearly depends who they’re working with and what they’re trying to achieve, but they may be able strike better deals with the providers in individual areas,” said Francis.
