Having conducted Peter Lee Associates research programs for more than 25 years, we have access to much historical data and commentary which enables us to observe developing trends and potential changes occurring within an industry. After completing the 2017 Investment Management program and working through the responses we find ourselves being put on notice of a development that seems to be occurring with respect to the relationship that superannuation funds have with asset consultants.
Whether we are setting out to conduct research on an industry or just a subset of one we are always looking to receive both quantitative and qualitative feedback from respondents. Our questions are not framed in a way that encourages only a simple “Yes or No” response; in fact, they are designed to encourage respondents to elaborate on their answers. And these verbal responses form the basis of the “Verbatim” feedback we provide clients when we present our findings to them.
Whilst quantitative data provides an ability for us to show our findings in easy to understand tables or graphical presentations it is sometimes the verbal feedback that makes more of an impact on a client. A graph might show overall performance but comments suggesting that performance is slipping or needs improving, address underlying issues behind the numbers and can sometimes be more powerful way. In isolation one comment does not make much of a difference, but when the same line of thought continues to reappear – and in some cases each year – clients tend to focus on – and react to – the specific nature of an issue. And it is just such qualitative feedback from this year’s program that provided another angle to the changing relationships between funds and consultants – and had us looking back into our vaults to confirm our thoughts. How right we were!
Five years ago when we asked superannuation fund executives what was the single most important action their Investment Consultant should undertake to improve service, we generally received answers emphasising a need for more proactivity and responsiveness, less staff turnover and greater client knowledge.
Fast forward to 2017, when both the tone and demands of fund executives have changed noticeably. We still receive the staff turnover and lack of proactivity comments but more focus is now being placed on strategic imperatives, collaboration and sharing IP – such as dynamic asset allocation advice; greater look through to manager assessments and ratings processes; deeper analysis of general investment trends, market activity and developments; and improving clients’ knowledge of newer investment styles (ESG, renewables, global infrastructure).
So, while it is no surprise that the relationship between funds and consultants is changing, to remain an integral part of the investment process (asset allocation, manager hiring, due diligence, sustainability etc) consultants must step up and provide a much more customised and “unbundled” service to their clients, based on a greater focus on the needs of each fund.
Our quantitative data shows a slight tick up in the number of consultants used by each client. It might only be marginal, but more funds are now looking to add extra sources of advice and assistance – and are increasingly also turning to investment managers. This is a good indicator of the likelihood that client churn will increase and fees will remain under pressure, unless consultants provide an even more differentiated and client-driven service.