The job of a pension consultant has evolved considerably over Bita Jenab’s 30-year career in the field. The mid-1990s saw a greater focus on governance and the arrival of the investment consultant, while the 2000s featured a mass move to defined contribution plans and significant changes to pension legislation.

Through all of that, plan sponsors were juggling more responsibilities, while taking a more hands-on role, says Jenab, principal of RetirementWorks Services Inc.

The changes marked the start of co-sourcing, as the consulting firms grew into one-stop shops providing everything an employer required. Now, with new platforms on the rise, delegated offerings and the ever-changing workplace, the consulting industry is evolving once again.

Read: The rise of the boutique asset manager

“We started in the ‘80s with clients that were very hands off,” says Jenab. “Then, as things got more complex, clients became more hands on and now . . . we’re going back.”

Indeed, as employers focus more on their core businesses, they’re rethinking the notion of having internal experts in pensions, benefits and compensation, says Ofelia Isabel, managing director of client management at Willis Towers Watson. “It’s a good thing for consultants, because that’s where the expertise lies,” says Isabel.

“We can’t just be deep subject-matter experts in one thing anymore,” she adds.

“We actually are being forced to be strategic business partners and help our clients think about where the world is changing, how to get their programs to work and actually help the organization in this new world.”

Tian Yang, an advisor in compensation and benefits at a public sector organization in the greater Toronto area, agrees, noting the importance of having a consultant with a solid grasp of all industry issues and changes. Her organization’s consultant works on the benefits renewal process, as well as union negotiations, legislative changes and any evolving trends. “They will keep us updated,” she says.

Partnering up

The new environment is also driving consolidation in the industry, says Mike Barone, employee benefits president of Hub International Ltd., which has been steadily gobbling up smaller Canadian consulting and advisory companies over the past year. Hub International bought Barone’s own San Diego-based firm in 2012, and he sees Canada’s smaller consulting and advisory businesses facing the same challenges as his company.

“I felt like we needed to combine with a much larger organization in order to make the requisite investments to meet current and future client demands,” he says, referring to actuarial services, underwriting, pharmacy, wellness and communications matters.

Read: Hub International acquires two more Canadian benefits, pension companies

Consolidation in the consulting industry isn’t a new trend. Globally, large firms like Aon, Mercer and Willis Towers Watson have grown exponentially over the years. In the case of Hub International, it appears the firm is looking to continue to expand, says Kevina Hyde, an associate at Vancouver-based Aptus Benefits Inc. “I think that’s an interesting development, because they are definitely buying smaller companies, similar to ourselves, that are four or five people to under 25 in size,” she says. “The rumour is there’s a lot more.”

On the other hand, Isabel is seeing the consulting field becoming a lot more crowded than it was a few years ago. “What we will probably continue to see — I don’t know if I would call it consolidation in the traditional sense, like Towers Perrin and Watson Wyatt coming together — but consolidation, buying up or partnering with someone who offers something completely different than you.”

It comes back to the evolving needs of plan sponsors and employees, which are in turn pushing consultants to ensure they can cater to everything. “So there’s probably going to be some consolidation but very different than it has been,” she says. “We’re now going to be looking to acquire skills that we don’t have time to build because the world is changing so quickly.”

Beyond OCIO

One of the reasons it’s imperative for consultants to have a broad range of knowledge is the return to more delegated roles, according to Jenab. The outsourced chief investment officer for defined contribution plans is one such role.

In September 2017, Mercer introduced an offering that allows defined contribution plan sponsors to access its investment managers, lower fees, governance and oversight. As plan sponsors grapple with greater complexity, there’s a desire to outsource more, says Jillian Kennedy, a partner and Mercer’s head of defined contribution and financial wellness in Canada.

Read: Options for small plans to invest like the big pension funds

“If you think about DC plans, a lot of governance committees will spend the majority of their time focused on the performance of their investments; if investments need to be changed, it can be a very long process to get the changes implemented. And that doesn’t really change the outcome for employees on whether they can retire the way they want to.

“So there was this governance need in the marketplace to say, ‘Help us with these back-office operations, the hiring and firing of managers, our vendor management, with all these categories of compliance and governance, so we can focus on strategy,’ which really moves the needle for employees on being able to achieve those better outcomes.”

While Kennedy also highlights fiduciary risk management as part of the focus of an outsourced chief investment officer, Colin Ripsman, Foyston Gordon & Payne Inc.’s vice-president and portfolio manager for clients services, argues that responsibility ultimately comes back to the plan sponsor.

“I think DC OCIO may be slightly more of a challenge from a fiduciary perspective. On the other hand, there are a lot of pension committees out there for DB and DC plans that don’t act quickly on information. And the benefits of an OCIO model, because it’s being offered to a range of their clients and managed by professionals who are overseeing it, [are that] any sort of problems or changes tend to be addressed a lot quicker.”

It’s also possible to delegate record-keeping services through an outsourced chief investment officer, says Ripsman. “You don’t typically, in an OCIO, get your choice of record keeper. [Consultants] have to achieve some scale, so the way they do that is, in most cases, they will choose one record keeper and you will migrate over to that record keeper and then a choice of investment options.”

Read: Assets managed by U.S. OCIOs to exceed US$2.7 trillion by 2022: research

There are, however, complications, according to Ripsman. “Most consultants are focused on providing a range of solutions and, in an unbiased way, guiding clients to what makes the most sense for them. Whereas on the product side, people are more used to presenting a product and highlighting the strengths of that product. Where it becomes particularly challenging is being able to offer both with one provider.”

While defined contribution plan sponsors are recognizing that they can’t just set their plan design and forget it, they’re also realizing there’s a limit to how much they can do internally and what the record keeper can actually do, says Idan Shlesinger, Morneau Shepell Ltd.’s senior vice-president of administrative solutions.

“A lot of the governance we’re talking about is monitoring what the record keeper is doing, whether it’s the communication, the investments, the record keeping itself. So obviously, the record keeper can’t really monitor themselves. So we’re seeing plan sponsors start to recognize that there is a gap here, and they’re looking for solutions to fill this gap.

“And that’s where we do see a continuum; it isn’t about a product. At the one extreme, you would have the real day-to-day operations of your DC plan: the record keeping, your trading. Very few plan sponsors want to do that themselves. But then at the opposite extreme, you’ve got the really strategic aspect — your plan design, your investment strategy, your decumulation strategy, communication strategy. And that’s the stuff that very few plan sponsors want to hand off. That’s where you really want to be focused. And then you have a range of activities in between.

Read: 2016 Top 40 Money Managers Report: The ins and outs of OCIO

“I think the move towards all these different products — the OCIO, the delegated DC — are attempts to find points along that continuum, where plans sponsors feel that, below this point, I’m happy to delegate more of these activities, but above this point, I want to carve out a space for myself to maintain the focus on the plan.”

Advisor concerns with CLHIA’s disclosure guideline

In January 2018, the Canadian Life and Health Insurance Association set out a proposed guideline for the disclosure of intermediary compensation in group benefits and retirement services. Since then, it has been meeting with advisors to gather their views and recommendations on the guideline’s implementation. But some advisors still have a number of concerns, including the following:

It isn’t comprehensive enough:

The Benefits Alliance Group’s task force on the guideline is drafting an advisor position that it plans to share with the CLHIA and regulators this summer.

“What’s lacking in this discussion right now is a balanced, comprehensive framework or guiding principles for what we would see as a proper disclosure guideline or policy,” says Todd Stephen, chair of the task force and the president of OMG Benefits Consulting Inc.

The position considers four key points: addressing any type of compensation practices that create a conflict of interest; transparency around cost of services to clients; fair treatment of the customer; and ensuring there’s a level playing field for advisors to compete.

It’s a matter for the regulators, not a trade association:

From the task force’s perspective, the CLHIA has a limited perspective on the issue of disclosure, according to Stephen. Others in the industry have raised similar concerns, including Dave Patriarche, president of Mainstay Insurance Brokerage Inc., who says the issue is a matter for the regulators and not the CLHIA.

It’s only a small step in the right direction:

Morneau Shepell’s Idan Shlesinger calls the guideline an important step but a small one. Indeed, Stephen believes what the CLHIA has set out so far doesn’t satisfy all of the categories necessary for a comprehensive and client-focused disclosure policy. He hopes the association will revisit and expand the scope of its guideline. “We can’t influence that, but our plan is to have an industry position that should be much more comprehensive than the one CLHIA has proposed,” says Stephen.

It could shift the role of the advisor onto insurers:

The guideline is going to cause anxiety and raise questions in the marketplace, according to Aon’s Anthony Perlman. Brokers, he notes, are likely asking if it’s a way of allowing clients to go directly to the insurance marketplace. “I would say the answer is probably no,” he says, noting insurers don’t necessarily have the capability to act as a broker or a consultant. “That’s not their core business. Their core business is to pay clients.”

It will force advisors out of the benefits business:

“It will clean up the industry to some degree, but I’m really worried that the fallout from this could be a huge amount of people leaving the business,” says Patriarche. He also worries about the impact on smaller employers. “It’s going to get nickeled and dimed down so much that no one is going to get serviced and it will become like the individual side, [where] everybody wants high-net-worth clients or big employers and nobody wants to help the little guy.”

Full transparency

One of 2018’s hot topics is compensation disclosure, as the Canadian Life and Health Insurance Association moves to introduce a guideline for transparency around payments to intermediaries in group benefits and retirement services.

The move ties in with the broader trend of delegated offerings, according to Jenab. “Most consulting firms were charging on a fee-for-time basis, based on an hourly rate,” she says, referring mainly to the large consulting firms.

Read: CLHIA announces tweaks to advisor compensation disclosure guideline

“Even if they would do, for example, a retainer basis or something like that, they always measure revenue on a fee for time. But with a delegated model, they’re going with a percentage of assets. So there probably needs to be more transparency in the consulting world on the fees that they’re going to be collecting.”

From a plan sponsor perspective, Yang believes it’s a good move. Rather than paying for services based on a percentage of claims, her organization pays its consultant a retention fee. With disclosure now on the agenda, Yang has now considered the need to ask whether the organization’s insurer has any other compensation arrangements with the consultant.

While the industry is still consulting on how to implement the guideline, Suzanne Lepage, a private health plan strategist, believes it will shift the landscape dramatically. “I think any of us who are consumers — and plan sponsors are consumers — they’re going to know what they’re getting for that amount of money they’re paying. It’s going to beg that question — ‘What am I getting from that?’ — whereas before, it was pretty silent,” she says.

“There are some advisors that already do disclosure, and I give full marks to them. This won’t impact them at all. It’s the ones that haven’t disclosed yet that will probably be more concerned,” she adds.

When Aon starts working with a new employer client, it’s fully transparent about fees, according to Anthony Perlman, the firm’s senior vice-president and national practice leader for health and benefits. “So we don’t feel that [the CLHIA guideline] and the release of financial compensation to clients is going to be anything new to Aon’s clients,” he says.

Hyde believes the guideline is a positive move that will increase professionalism and knowledge in the industry. It will also increase the focus on staying current as it will be difficult for consultants to have important conversations with plan sponsors if they aren’t able to identify the value and how it relates to cost.

Read: CLHIA sheds more light on compensation disclosure guideline

“I think it’s a good thing, and I’m happy they’re taking a bit more time,” she says. “We don’t want to be seen as used-car salesmen; I cringe at that thought. And there’s definitely that commodity factor that sometimes you feel in that small- or mid-size market, and I think it will help address that.”

Introducing the financial wellness consultant

The concept of a financial wellness consultant is on the horizon, according to Mercer’s Jillian Kennedy. “This isn’t about focusing in on pension governance or even governance around investments,” she says. “It’s almost like a non-traditional stream of consulting
around how you best think about financial wellness, how you benchmark the behaviour of employees and how you come up with a comprehensive strategy that you can roll out and benchmark your success.”

The role would turn investment research and data into behavioural science and analytics, says Kennedy, in order to help employers understand what they’re getting from their record keeper, how they can better articulate their offering to employees, how they can best use their resources and where to spend their money.

“There’s a lot of need for that right now in the market, so that’s definitely an area where we think that consulting will be a channel for clients that’s a little more non-traditional,” she says.

New platforms, digital players

When it comes to staying current, consultants must be up to speed on the latest digital platforms, both from insurers and other industry providers. The platforms include new and expanded offerings from insurers that engage more directly with plan members about their health.

The insurers have always been evolving their services, but they don’t overlap with those provided by consultants, says Sarah Beech, president of Accompass Inc. “Every industry should be current with the times and future-focused and thinking. So given we are in a world of technology and . . . opportunities that can be there to help employers and employees, it’s incumbent on us as consultants to make sure we’re current and relevant and know what those offerings are,” she says.

“It’s perhaps an evolution of the knowledge base a consultant needs to know, but it’s not a change in the role,” she adds.

Read: New online platform joins roster of benefits disruptors

Another potential challenge in the digital space is the growth of disruptors such as League. Whether it’s benefits administration, a wellness app or a technology solution, they all have a role to play, says Perlman. “Some of them are competing against us for brokering/consulting services, and some of them are competing against the insurers to take over their services,” he says, noting he doesn’t believe the new offerings are a concern for the large consulting firms, particularly as they enhance the plan member experience.

“The question becomes, is it well-thought through? Just because the insurer adds that value [doesn’t mean] the client needs it or is willing to pay for it.”

It’s also an area where consultants have an expert role to play, as they vet the available options. “We understand what there is and what the differences are and then we determine what the best solutions would be for our clients in that regard,” says Perlman, not-ing many roles in the industry are changing.

“But my view would be that if we don’t go to sleep at night thinking about what that change will look like and wake up in the morning with at least a view to how do we help facilitate the change based on the demographics and the market needs, then we’ll be left behind.

Read: 2018 Group Benefits Providers Report: Navigating the digital deluge

“So we are doing our homework, we’re changing as quickly as we can within the environment we can work within. We’re bringing new solutions to the market . . . we’re adapting. Are we adapting quick enough? In my view, we’re never quick enough . . .. We’re trying to keep pace with the market, and some are doing a better job than others.”

The impact of national pharmacare

Another potential big change in the industry is the introduction of a national pharmacare program. In April, a House of Commons’ standing committee recommended a national single-payer plan, suggesting there would be a voluntary national formulary and the provinces would administer pharmacare coverage with federal financial support.

While the exact makeup of a national program is still unclear, Perlman believes it’s a long way off. But the ultimate role for consultants will be in educating plan sponsors. “Our involvement, as we go through that, will be with our clients to say, ‘As it evolves, this is what you can and cannot do, this is what you should or shouldn’t do and this is how it will impact what it is that you have today,’” he says.

“Will that have implications for our revenue? I think, over a period of time, it might. But it just depends what that infrastructure looks like that the federal government and provinces are going to put in place.”

Read: National pharmacare program should be voluntary for provinces, territories: premiers

Ontario has already had a test run with the introduction this year of a new program covering prescription drugs for everyone under age 25. When there were delays with the exceptional access program assessments, the consultant was very helpful with assistance and information, says Yang.

“In my mind, during the transition period to pharmacare, more help would be needed from consultants to navigate through the system, especially the speciality drugs that are only accessible through the exceptional access program.”

But once the program is in place, the role of the consultant will adapt to helping plan sponsors understand what the government plan doesn’t cover and how they can allocate the money saved to other benefits, according to Yang. “Consultants’ recommendations would be helpful to determine how to enhance other benefits and improve employee health in general. Employers would need some creative ideas for future benefits design.”

Read: Assessing pharmacare’s impact on private drug plans

Hyde agrees that a national pharmacare program will emphasize the role of good advice and plan design. “What it may in fact do is allow employers to free up some dollars in specific areas and spend them in others. But at the end of the day, the employer and our taxes are going to pay for it, so again, I just think it will create another conversation for us to have with our clients . . ..”

For consultants, it will also emphasize the importance of staying knowledgeable. “The same will hold true regardless of any government changes that happen in the future,” says Beech.

“From the evolution of a consulting role . . . we have to know what’s going on. Things change very quickly and our role really is, and always has been, to be thinking ahead on behalf of our clients.”

Jennifer Paterson is the managing editor of Benefits Canada.

Download a PDF of this article.

Editor’s note: Since the July/August issue went to press, Anthony Perlman is no longer with Aon and Colin Ripsman is no longer with Foyston Gordon & Payne.

Copyright © 2018 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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