A key architect of the compulsory retirement savings system lauds its many achievements, stretching from the national economy to the individual. Where it’s double faulting is in serving members – and it needs to be addressed promptly.
With performance and diversification driving demand, these funds are expected to experience four-fold global growth over the next decade to nearly $AU65 trillion.
Insourcing and what it means for consultants
(pictured: Fiona Trafford-Walker)
The biggest challenge facing traditional asset consultants is the internalisation of investment management by big funds and the provision of advice inside the funds, according to Fiona Trafford-Walker, the director of consulting at Frontier Advisers. At the same time, the work of those consultants was getting broader.
She addressed the Women in Super NSW lunch in Sydney last week, at which the latest round of University of NSW AGSM scholarship winners were announced (see separate report).
The internalization trend created challenges of it sown, she said, such as operational and cultural changes, benchmarking and acting quickly “when things don’t work out”.
“The funds are investing heavily in new talent and capabilities,” she said. “We have lost eight staff in the past 12 months and five of them have gone to funds. That has never happened to us before. It’s a big trend that will cause challenges.”
Asset consultants were no longer seen as “hand holders” or “gatekeepers”, but were hopefully still influential with member and sponsor outcomes. “Net risk-adjusted returns rule, OK,” she said.
Frontier last year launched its information and research platform which allows funds to do a lot of work themselves based on the Frontier IP. It also has a deal with performance data provider eVestment which allows it to compete against Mercer’s GIMD (global investment management database).
Generally speaking, Frontier is devoting proportionately less time to individual manager research and more to investment strategy, asset allocation and training and coaching.
Managers who attended the separate Frontier manager information seminar in Melbourne last week were told that there were unlikely to be more than a handful of new Australian equities managers added to the Frontier roster of recommended firms this year.
There is much greater differentiation between the four major asset consulting firms – Frontier, JANA, Willis Towers Watson and Mercer – now, Trafford-Walker says, as the number of super funds has declined. In 2005 there were 1,376 funds with assets totaling $263 billion, she said. In 2015 there were just 94 with assets totaling $723 billion. But there were still a lot of other investment pools, such as sovereign wealth funds, endowments and universities and charities.
Asked about the potential disruption within asset consulting by the early success of the UK-based manager search firm bfinance, which has won five client searches in recent months and charges the winning manager a fee rather than the super fund, Trafford-Walker said “we co-operate with them and co-exist”.
She pointed out that they had a client in common – Non-Government Schools Super – and that bfinance was not a “pay-to-play system”. Apart from the remuneration model, another difference with bfinance was that they do a bespoke search for every mandate, which Frontier do not do.
In her prepared address, Trafford-Walker concluded with a call for more integrity within the financial services industry. Referring to ‘Meliorism”, the belief that the world can be made better by human effort, she said that a recent US survey showed that the finance sector was the least trusted of any industry, which was particularly bad given the importance of people’s retirement.
“When you work in a system which is compulsory the hurdle should be high,” she said. You shouldn’t have to sign an oath, such as the “banking and finance oath”, to do the right thing by your clients. “You should just do the right thing.”
