EUROPE - Pensions and investment consultants still appear to be in disagreement when asked whether giving both advice and selling multi-manager investments within a single firm creates conflicts of interest.

A survey of 15 European consultants conducted by IPE has revealed the view of consultants about potential conflicts of interest is, unsurprisingly, dependent on the business model they apply, though even some larger organisations still question whether conflicts can be sufficiently managed where the concept of implemented consulting is applied.

In particular, Marc Hommel, partner and UK pensions leader at PricewaterhouseCoopers, said his organisation is content to advise his clients use consultants adopting the implemented consulting model as long as there are no apparent conflicts of interest elsewhere.

"We are much more comfortable with implemented consulting where it is done by a niche firm rather than the organisation that is also providing actuarial or legal services to the trustees," said Hommel.

"I think it is possible [to offer implemented consulting without conflicts] but it is very difficult and trustees need to make sure that safeguards are in place. The question trustees need to ask is ‘who's going to pick up the tab?' Is it the trustees, the members, the Pension Protection Fund, the part of the firm that is providing the advice or the implementation? Trustees should have complete clarity over the answer to that question," he advised.

Defending the position of firms with consulting models, Andrew Kirton, global head of investment consulting at Mercer, argued it is not necessarily pension funds who needed to be persuaded there are no conflicts of interest within internal operations - whether they operate implemented consulting or house a mix of investment and actuarial services.

"Investment consultants value their independence and the client relationship, and in many cases are quite protective about it," said Kirton.

"If you have an in-house manager of managers the challenge is really selling it to consultants rather than selling it to clients. We have made some progress but we tread carefully because we know that with clients it's a trust relationship and we want to do what is in the best interest of clients, -which is also in our best interest. I also think the consultants within IC [investment consulting] would be stern critics about any weaknesses the find in IM [investment management]. They know how to critically analyse an IM product and if it doesn't stack up it's never going to fly with those consultants, so that is a good discipline,' he continued.

He acknowledged the ‘lines' between different divisions of the market have blurred, though he disagrees it creates a conflict of interest.

"Maybe it will but it hasn't led to doors being slammed in faces so far, it's an interesting industry in that respect," continued Kirton.

"Exempting the investment banks it's always been an industry that behaves relatively professionally. It's not a cut-throat competitive industry as people who compete against eachother do appear to be able to co-operate quite well in other contexts and in many cases quite like each other," he added.

Yvan Legris, president and global head of consulting at Hewitt Associates, argued any possibility of overstepping boundaries is never considered as the impact could be damaging to business.

"I talk about lines in the sand that I do not want this firm to cross, so the line is when do we stop being a trusted adviser and when do we become an asset manager? That line is not one I want to cross," said Legris.

Dirk Söhnholz, partner at Feri Institutional Advisors in Germany, takes a different approach and believes if there are conflicts firms should be upfront from the beginning.

"Conflicts of interest may arise and all potential conflicts should be made transparent to the client upfront. Clients can decide if they want to receive ‘traditional' consulting or implemented consulting," said Söhnholz.

"Often, implemented consulting offers very cost-efficient solutions. Critics mainly claim that providers of such products will not independently control themselves, but good incentive structures can align interests of investors and multi managers. The benefits of excellent portfolio implementation and ongoing professional services to the client in customised multi-manager solutions by far outweigh the potential disadvantages," he suggested.

It is perhaps why Paul Trickett, European head of investment consulting at Watson Wyatt, accepts few organisations are "free of all conflicts" and also argues it is better to be upfront about conflicts.

"We want people to understand what our commercial interests are, how we get paid, what our relationships are with managers and we are completely transparent in making that available upfront to clients and potential clients," said Trickett.

Further developments within the consultantcy market will be discussed on IPE.com over the course of the week, to accompany an in-depth analysis published in the March edition of IPE.

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