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Quality matters: Assessing investment consultant performance

Assessing investment consultant performance

Should you take a quantitative or a qualitative approach when judging the performance of your investment consultant? KPMG’s Daniel Broad, Director at KPMG in the UK, and Keith Lewis, an independent trustee with PTL, says it’s important not to underplay the latter.


Director, Investment Advisory

KPMG in the UK


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Assessing investment consultant performance: Illustration of caliper measuring a coin

Pension trustees typically use benchmarks to assess the performance of investment managers. And examining how funding levels are progressing against target are, undeniably, an important part of the mix. However, raw data can only take you so far. 

Why is that?

First, a purely quantitative approach has some important drawbacks. For instance:

  • The result can hide the risk taken to achieve it, artificially flattering the consultant. As Keith Lewis explains: “You need to understand what could have happened if market conditions had been different, to separate out the market noise from the quality of the strategic advice”.
  • It is also very difficult to determine the time period over which to judge performance. Too short and you can’t fairly assess the strategic advice given (which may well be right for a 20 year period). Too long and you fail to generate meaningful insights.

Second, it is the investment consultant’s role (as distinct from a fiduciary manager) to arm trustees with the ability to interpret information and make decisions. To achieve that consultants need to deliver advice with clarity – both written and verbal – and also to pro-actively explain and train trustees around new investment ideas. It is the trustee who will be taking the decision after all.

Getting the most out of your consultant

How much value a trustee gets out of this advice will differ with every scheme, but a good starting point is to have a system where trustees properly record those interactions. As Keith Lewis from PTL puts it: “Individuals change and advice gets forgotten. It’s important trustees document all advice and decisions taken, so it can be referred to over the following years”.  

Independent trustees are also useful in bringing a wider perspective – drawing on their own professional experience and their work with advisors to other schemes.

Having a second opinion from an alternative investment consultant can also be useful, as many schemes do already. In this case, it’s vital that the reviewing investment consultant is clear about their role: not to disrupt proceedings but to challenge where required. Though as Keith Lewis notes: “be mindful of the additional cost and compare it with the expected benefits”.

Avoid a short-termist approach

Clearly frequent reviews ensure strong oversight, but they also risk encouraging short-termism. In the end, that can be both costly and jeopardise a pension scheme’s long-term success. For example, an investment strategy set to deliver success relative to a funding target could be ‘closed out’ to highlight a positive assessment – essentially ignoring the option of changing the target to improve outcomes for members and/or the sponsoring company. 

As long as steps are taken to avoid these problems, assessing investment consultant performance (and learning from the results) should lead to higher quality advice, a greater understanding of the value the investment consultant provides and more cost-effective results throughout the industry as a whole.

Valuable expertise where it counts

For the last 10 years, KPMG has offered our investment advisory clients a performance-related fee option. At the end of each year, our clients formally assess our performance, typically using a combination of scheme specific quantitative and qualitative factors, chosen by them.  Based on their assessment, they can adjust what they pay us, discounting our fees by (for example) up to 15%, or awarding us an equivalent bonus.  In return, we simply ask that the feedback is shared with us, helping us to enable and meet the requirements of clients.

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