© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the August 2005 edition of BENEFITS CANADA magazine.
Looking inwards
Canada’s pension and benefits consulting leaders discuss the state of their industry.

The pension and benefits consulting industry is undergoing a great deal of change—shifting client expectations, expanded service offerings, and partnerships with IT and outsourcing providers. BENEFITS CANADA recently sat down with senior representatives of some of Canada’s largest consulting firms to get their take on the shape of the industry and where it’s headed.

Michel Guay, managing director, Watson Wyatt Worldwide
Pierre Lemelin, managing principal, Towers Perrin
Ron Lloyd, president, consulting, Canada, Hewitt Associates.
Marilynne Madigan, senior vice president, Aon Consulting
Randal Phillips, executive vice president, Morneau Sobeco
Jacques Theoret, president and COO, Mercer Human Resource Consulting

Q: How would you categorize the state of the consulting industry? Is it dying?

Ron Lloyd: Twenty years ago we had 20 firms in the industry, 10 years ago we had 10 larger players and today we have five or so. And tomorrow you could even have less. So I think the industry is going to continue to evolve. Our business as we know it today is going to be vastly different three years from now. We’re no longer just in the consulting industry. I believe we are in a total HR solutions industry.

Michel Guay: The challenge we have as an organization is to come up with new ideas. If you want to add value, if you want to show you are different than others, it takes a lot more effort than it used to.

Jacques Theoret: If you look at the revenues and you look at the manpower services, [the consulting industry] is not going down. It’s not going up the way it was going at the end of the ’90s, but it is going up.

Pierre Lemelin: The driver of the growth from the late ’70s to the early ’90s was defined benefit pension plans. Clearly the defined benefit pension plan has slowed down. At the same time, you don’t see their disappearance happening as quickly as you do in the States. In Canada, they are more resilient. Will that remain the case? I hope so.

Randal Phillips: A lot of the demand we’re seeing is being driven by the need for change. Plan sponsors are having trouble with fiscal governance and they are definitely having trouble with the costs of their existing insurance programs. That is certainly going to drive change to more complexity and plan sponsors are going to need advice to do that. So actually, I think that is good for the industry. I don’t see dead or dying in the scenario at all. Changing yes, but not dead or dying.

Marilynne Madigan: It is definitely changing. From an integrated perspective, we’re going to find ourselves working with each other as opposed to having a onestop opportunity with a particular client. We are partnering with some of you around the table right now.

Q: What are the greatest opportunities for growth in your industry right now?

Lloyd: I’d say one of the biggest areas that we see is employee engagement. Even in our own industry, we need to attract and retain great talent.

Lemelin: It’s not only to attract people, it’s to keep people engaged. That goes into the total rewards package. Not only benefits and compensation, but also training, leadership and communication. The key to us has always been the same: change. There’s a lot of change all over the place. So we just have to find our niche to help the client wherever we can.

Madigan: Our client is changing as well. That is going to force us in the industry to be very creative. Human capital risk management is becoming critical for us in the industry and everything that goes along with that.

Q: We’ve seen a trend in the States towards HR business process outsourcing. How big a trend will that become here?

Lemelin: I think it’s an emerging industry. The focus will be on the bigger companies initially in Canada. It may take a little more time in Canada—until the industry gets its act fully together and brings the price point to a level acceptable to a 5,000- or 6,000-employee company.

Lloyd: I would say it is the future. And I don’t think anybody at this table can question it. Everyone of us is making a play in the systems area. At the end of the day, everyone of us is saying: “How do we become a leader in that industry?” And those who are able to make significant investments and have a global view of business process outsourcing will be in a leadership position.

Phillips: The economics do not seem to translate well down to a mid-market organization. The question is, how much of the total market can a BPO model capture? I don’t know the answer, but if you take out all the midmarket and the government sector, is it 30% or 40%? It’s still big, there’s no question about it, but it’s not going to be 100%. I think there is going to be a need to find innovative and cost effective solutions for other organizations that don’t fit that model.

Q: What’s driving the outsourcing decision?

Madigan: I think that the push really is talent management. I think that the more HR can spend on the more strategic things and ensure that service levels are there for the employee, the more we will see that shift. The core competency issue is paramount for an organization. Organizations are forced to make HR infrastructure more efficient and get back to things that are really going to drive success in their organization.

Theoret: Put yourself in the mind of the employer. It’s complicated. If there are organizations that are very good at [providing HR business processes], why would an employer want to keep those functions if they want to focus on other things?

Lemelin: It’s true that a few years ago, clients were coming in and asking for actuarial services, pension administration, sometimes asset consulting. Now some are saying: “You can manage our asset performance.” Will that bundling of services expand? Will they want us to go further in risk management? So we wonder where that trend of outsourcing business processes will stop.

Lloyd: I think there’s another whole animal called co-sourcing. It doesn’t necessarily suggest that Canada is going to do full BPO. There are solutions in between where it allows the client to outsource a lot of the non-core functions to a provider or partner, but still retain employee contacts and call centres within the organization. It isn’t just one solution for everybody.

Q: What are your clients’ biggest challenges right now?

Phillips: I think cost is driving them significantly, certainly on the benefits side where there’s been unrelenting increases in costs. Many of them have DB pensions as well. I don’t think they’re getting good value for those programs and they aren’t well understood. They also see risk attached to those programs for them or their organization. Only speaking of our clients, I think those two things are leading the hit parade.

Lloyd: In corporate North America there’s not an HR head who’s not feeling the pinch with respect to getting a handle on the total HR spend. I think a big part of our role for the future will be helping clients understand, first, the baseline costs of HR. From there you are dealing with dealing with factual data—and it will be more than just what do you spend on benefits, what do you spend on pay. It’s covering all the hidden costs of HR delivery.

Q: How are plan sponsor expectations of their consultants changing?

Lemelin: They don’t want us to give them the management 101 course. They want us to tackle the issue thinking about the impact it will have on their business. And they want us to be able to offer them solutions we can help them implement or find a way to implement. And they want us to help them go through the change process that will go with it. In other words, they want us to help them solve business problems, so we need to focus on that.

Phillips: What we’re seeing is there’s been a real push for taking responsibility for problems. In other words, if a client has a cost problem on their benefit plan or pension plan, [they expect us] not just to come up with bright ideas to solve it but actually to help them implement, communicate and eventually measure and manage the performance of that change so that they know they got a good outcome.

Guay: Some clients are looking to partner more than ever. It used to be you’d get clients who were giving you the job and expecting you to come back with a solution. Right now, what they are looking for is true partnerships in the sense of having real client/consulting teams working together finding solutions.

Lloyd: At the end of the day, our clients are looking for a five-letter word, and that’s trust. That they can trust who they hire as advisors to be thinking for them in a proactive way and that they deliver on what they say that they can do. In a time of change, trust becomes even more important and our industry is going through a time of change.

Guay: You have to be in a situation to be able to say to the client: “No, I can’t do that part as well as you are hoping I can.” Where you can go to the client and say, “Your procurement people want us to do this for 20% less. Well, we just can’t.”

Q: What plan sponsor expectations is your industry not meeting?

Theoret: If I look at our industry, I think clients are not comfortable with the pension regulatory environment. Could we have done a better job of influencing legislators in different provinces for more cohesive legislation? Maybe it is something we could have done better. Could we have had more influence? I think we tried as an industry, maybe not enough together.

Guay: I wouldn’t say we failed our clients. Maybe we could have done a better job. I think we all tried, but we all tried our separate ways and right now what we see is some of us getting together and forming better associations and partnering with people of influence, people who have experience with lobbying. I think we’re doing a better job.

Q: What role is finance playing on the plan sponsor side of the relationship and what does that mean to you?

Guay: Because of the pension expense issue, the finance people are getting more and more interested. You see more situations where you’d have a senior finance person on a pension committee. Whereas before, often times it was the vice-president of human resources. Right now, you can bet it will be a finance person because the financial consequences are really too obvious for them to ignore now.

Madigan: Our client contact is now rightfully at the executive table. And so by virtue of finance being there and our HR client contact being at the executive table, we have to become business advisors and behave differently and anticipate different solutions than we have had to do in the past.

Lemelin: It comes in cycles. I remember the end of the ‘70s the beginning of the ‘80s. At that time many [pensions] were in a deficit position and the CFO was all over the place. Then we started to develop surpluses and it became pension income, so it became an HR issue. Now we have the perfect storm. So CFOs are coming back into the picture and they are more attuned to looking at asset and liability and how those two match together, and how the risk associated links with the cycle of their business. They want projections. They are adding a lot more discipline to the process.

Q: What does the future hold for the pension benefits consulting industry?

Phillips: I think it’s a good future. There’s a clear and growing need for our services. There are important demographic changes on the way in the Canadian workforce. There’s significant cost pressure that is demanding change. I think to be successful for us we’ll have to remain relevant to clients, finding solutions that make sense and helping them to see it through to the end.

Guay: The success will come to those who can adapt quickly and who can be proactive in bringing a solution very quickly to their clients.

Lemelin: In a few years we will probably have to change our titles so that we are no longer just benefits consultants. We will be HR consultants in the sense that we will integrate not only compensation but the whole total rewards. Our role will be to help our clients to get the best from their employees. So If DB disappears, there will still be employees, there will still be rewards. The real reason we’re there is to help the client succeed.