EUROPE – International consultancy Watson Wyatt has given details of its Advanced Investment Solutions (AIS) approach to investment consulting for clients, designed to “join up investment strategy and manager selection”.

In return for taking on more responsibility within clients’ portfolios, the consultant will be rewarded by performance fees related to the outcome, explained Kevin Carter, European head of investment consulting at Watsons, at a briefing in London.

Describing it as a “broader version of our implemented consulting approach”, he said it consisted of a spectrum of services that includes management selection and removal. It was in addition to and did not replace the firm’s investment consulting services.

He painted a scenario of where a client might ask the consultant to agree and implement the investment strategy in relation to liabilities, the risk budget, manager selection, monitoring and deselection as appropriate, taking into account transaction and fee costs.

The time span involved in this process could be much shorter than the typical reaction time of a board of trustees, which could take up to a year to replace a manager all told. “AIS will cut implementation time,” Carter said.

“This is not a funds of funds approach,” he said. AIS is similar to manager of managers, except they do not look at liabilities. “We look at liabilities and the risk budget,” he added.

The client at all times has the relationship with the managers, custodians and other providers. Watsons could be removed without affecting these relationships. “We want to maintain our trusted adviser status,” Carter said.

Carter saw the arrangement involving a retainer fee lower than the normal advice fee, plus a performance fee related to outcome. “All clients obtain best ideas at time of doing manager searches.”

“Of our 400 clients is Europe, 10 are now clients of AIS. A year ago there were just two,” said Carter. He stressed that this service is one that clients are requesting rather than the firm pushing.

Institutional funds want bespoke solutions, more accountability and measurement, which would align the interests the client, he said. The firm expected to see more third-party measurement of consultants in the future, which it accepted.

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