Guiding Light
August 01, 2008 | Alyssa Hodder

In a challenging social and economic environment, plan sponsors are looking to pension and benefits consultants for enlightenment.

It’s a demanding market for pension and benefits consultants. On the pension side, there’s only so much business to go around—particularly since the rate of conversion from defined benefit (DB) to defined contribution (DC) plans seems to be slowing. From a benefits perspective, insurers and other providers are extending their range of services, encroaching on what used to be the benefits consultant’s exclusive territory. Add to that a dragging economic climate of low returns and sluggish markets, which has forced many companies to cut costs—in which case, consultants may be first on the chopping block.

In these conditions, how do consulting firms stay competitive? It’s all about finding the right fit.

Jack of All Trades or Master of One?

The pension and benefits consulting industry is much more competitive than it used to be, consultants say—particularly when it comes to retirement and actuarial services, since this market is more mature. “There’s not a lot of new business, as far as new DB plans that are being created today,” notes H. Clare Pitcher, principal and consulting actuary, with Buck Consultants. “So the new business that you’re getting, you’re often taking away from somebody else.”

And while a little competition can be healthy, too much can have negative consequences for consultants and clients alike. David Frank, a consultant with Bell Financial Inc. (an independent consulting firm), says that some suppliers attempt to undercut the existing competition by aggressively lowballing first-year fees in the hope that sheer inertia will cause a client to stay for the long term. “I think some people are now making very aggressive promises to get in the door,” he says, adding that “competition is not nearly as polite as it used to be.”

Not only is the competition more ruthless, it’s coming from more sources than ever before. While the main consulting players have remained more or less the same over the past 10 years, other providers are now entering the same service areas. For instance, the insurance industry has established a solid presence in the area of plan member communications—traditionally, part of the benefits consultant’s role. Similarly, some employee assistance program providers are moving into the more wide-ranging area of health and wellness. “What we’re finding now is [that] some of those vendors are themselves now competitors,” says Joseph Ricciuti, director, client solutions, with Watson Wyatt Worldwide. “The traditional suppliers are changing their product offering.” This creates an extra challenge for consultants: new players competing for existing business within the same market.

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But the desire to branch out into new areas isn’t one-sided. Consulting firms are also seeking out new markets through strategic alliances with players offering complementary services. Take, for example, Towers Perrin’s acquisition of International Survey Research (now TP-ISR) to gain access to enhanced customized employee surveys and research tools and analytical capabilities. Or Morneau Sobeco’s acquisition of Shepell·fgi to offer an expanded range of workplace health and productivity solutions.

The activity these days isn’t pure consolidation— consultants agree that most of the major acquisitions among consulting firms have already taken place. Instead, the industry itself is changing shape as new partnerships form and the lines blur between traditional pension and benefits consulting and broader workplace issues.