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THE MORRIS REVIEW
The Morris Review of the actuarial profession: tough new standards for pension actuaries

 

 

 

Market testing

In any market increased competition is usually good news but one question needs to be asked are the trustees aware of the changing market?
Extract from the newsletter of a leading law firm

Market testing is all about taking the pulse of the changing nature of available services, finding out what's been happening in the market place in recent years, discovering who are the new players, how the traditional firms are reacting to change, if fee levels are going up or coming down and so on. The fact is that the pension adviser market is very different from what it was just five years ago and is almost indistinguishable from the one five years before that.

Why is the market changing?
Mergers and consolidations among the consultants continue almost unabated and new firms, often created when a few disenchanted individuals leave larger firms, emerge regularly. Some advisers become specialists in niche areas whereas others pursue a deliberate policy of diluting their pensions work in favour of broader human resource consulting. And the widespread closures of defined benefit pension schemes means that mainstream actuarial work is now largely regarded as a commodity rather than a value-added service and associated fee levels are generally falling.

In short, there's a huge amount of change taking place in the adviser market. Schemes and companies that keep abreast of these changes and take advantage of them can be assured of staying one step ahead in terms of service quality and price.

Although market testing uses many of the same analytical and measurement techniques as a full-scale selection process, the principal reason for doing it is quite different. The main reason for selection is to overtly look for a new adviser, usually as a result of some problems with the incumbent. With market testing, the current relationships may be adequate or better but finding out what's on offer elsewhere - and at what prices - simply makes good business sense and is all part of modern standards of governance.

Indeed, the Morris Review recommends that market testing should be carried out no less frequently that every six years (more often in some circumstances), citing the following two important advantages:

  • the underlying threat of possible switching keeps the incumbent advisers on their toes and exerts competitive pressure to encourage best practice advice and innovation, and
  • it informs the users of these services about alternative actuarial approaches and methodologies.

In the past, some companies and pension schemes have been reluctant to carry out market testing because they felt sensitive about sending what might be regarded as a negative message to the current advisers. But it doesn't have to be that way: with PAR leading the market testing on your behalf as an independent and impartial specialist, we replace emotion with professional focus, explore all aspects of the market with rigour and recommend a detailed action plan based on your own unique set of individual facts and circumstances.

  
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