The trend towards implemented consulting shows no signs of slowing, with the market now worth $15 billion to $20 billion (depending on how it is defined).
A key driver of this growth is the scramble by corporate super funds to outsource their investment decisions to specialists, because they recognise they can’t match the services offered by the better master trusts and industry funds. Also having an impact are an increasing focus on costs by companies, growing member demands about the services they receive and the increasingly complex investment environment.
So far, however, the main market for implemented consulting work is corporate super funds with assets of between $20 million and $1 billion. Some institutions and charities have also begun to consider implemented consulting, and with Australia’s corporate super industry worth $70 billion, there’s plenty of scope for further growth.
Rainmaker Information research director Alex Dunnin notes that about 20 per cent of the market now uses implemented consultants and he reckons that the market is growing by over 20 per cent a year.
The bulk of the implemented consulting market is focused at corporate super funds, but some, like MLC’s general manager for the institutional market, Joanna Davison, highlight the $250 billion size of Australia’s super market as the target market for implemented consulting.
“Trustees of larger super funds are increasingly attracted to implemented consulting as the complexity of markets rises and the burden of undertaking due diligence compounds,” she says. “Implemented consulting is a good way of accessing new investments, such as private equity, and allows companies that want to retain control of their super funds to avoid investment hassles.”
The biggest move over the past year has been the $100 million Pilkington fund joining MLC’s implemented consulting operation.
Dunnin believes that choosing whether to go the route of a master trust or implemented consultant “depends on the circumstances — both are set to grow as corporate super funds outsource”.
InTech senior consultant Corrin Collocott says a major advantage of going the implemented consulting route is its greater flexibility. “Trustees retain more control and can more easily avoid potential conflicts of interest. The best approach to outsourcing recognises that it is crucial to choose the right investment solutions provider before considering other issues like administration and so forth.”
In Australia, four providers probably account for more than 95 per cent of the implemented consulting market. MLC probably has more than half the market, with Frank Russell the next largest force. InTech and Mercer are the other two significant players in the market.
For trustees, the big decision in considering implemented consulting is whether to trust their asset consultant to also be their fund manager, or vice versa.
The issue of whether implemented consulting is in itself a breach of trust and leaves a gap in the provision of independent advice to super funds will have to be resolved, especially given the growing pressure on trustees to monitor corporate governance issues more seriously.
There is little doubt that implemented consulting can tempt providers to pressure existing clients into the implemented service and push their implemented product to the detriment of alternatives. It is how the implemented consultants manage such temptation that will test future growth.
