A major talking point, at least for some, in the UK pension fund industry right now is the imminent merger of two of its leading independent consulting houses, Aon and Willis Towers Watson. I say “at least for some” because given the scale of this merger, it strikes us as odd that it is receiving so little broad coverage. It's as if it doesn't matter that much. This is not the feedback we are receiving, as evidenced by some of the concerns expressed by a group of their pension fund clients at a recent Avida International roundtable, which we have grouped in the following way.
- Enforced changes will be required to avoid conflicts: an example would be where a pension fund is advised by Aon, the sponsoring employer by WTW or vice versa.
- Competition in the market for advice will be reduced: As one pension fund CEO remarked: “costs go up and quality goes down”.
- Pension fund clients face significant risks, at least in the short-term: two different cultures and overlapping teams points to job losses that could lead to a significant period of organisational turmoil with customer service quality a likely casualty.
- Trustees also face risks: the merger puts pressure on revenues that may accentuate the existing industry trend towards trustees being encouraged to utilise their advisors in-house fiduciary management resources, a clear conflict of interests.
- Potential operational implications for pension fund executive teams: most pension funds use external advice which is embedded in the operational processes of in-house teams. This is likely to result in at least some disruption, especially during the merger transitional period.
- What will the advisory services of the merged entity end up looking like? The merger brings together two very large and contrasting advisory styles. Therefore, depending on which culture and philosophy “wins” it is clear that a significant number of pension fund clients will find themselves with a team and scope they did not choose.
None of the above is inconsistent with a counter-argument contending that this merger could, on balance, produce customer benefits in the longer-term. But in the short-term at least, these concerns are entirely valid.