They are still the chief gatekeepers to hundreds of billions of dollars of superannuation capital and help develop many of the ideas and instil much of the discipline that is used to invest it. But as funds continue to grow and employ investment staff to assert more control over their portfolios, how can asset consultants adapt to stay useful? SIMON MUMME reports.
Inevitably, the money flows in. It compounds over the years and suffers the gyrations of financial markets. It belongs to millions of Australians but is managed by a relative handful. You could gather the most influential people investing this wealth and their advisors in a single room. For most of the history of superannuation, investment consultants have been the gatekeepers to this wealth and have instructed funds about how to invest it. This hasn’t changed. But as funds grow beyond $20 billion or $30 billion it has become common for them to hire investment professionals to focus on asset classes and report to CIOs implementing these strategies. Consultants are no longer guides to the investment world for these funds. They are partners on the journey.
Fiona Trafford-Walker has been at the helm of Frontier Investment Consulting, which advises $117 billion, since its origins as part of Industry Fund Services in 1994. In theory, she says, investment staff within funds can replace consultants. “But our hypothesis is there is more need for people like us as a sounding board for ideas.” She says Frontier’s knowledge of funds’ histories advances this case. “That level of experience is valuable.” For Towers Watson, this change causes it to engage more “deeply” with larger clients, says Graeme Miller, head of investment at Towers Watson. These clients “expect more specialisation, deeper research and an extension of their internal resources” from investment consultants. Consultants exist to provide expertise. In days gone by their value proposition to super funds was straightforward, says Brett Elvish, director of Financial Viewpoint and a former boss of investment consultant Intech, now called Ibbotson Associates.
Today it is more complex. “Standing up in front of a client and articulating expertise is a very different role than partnering with a client,” Elvish says. “Australian asset consultants have had a far more dominant role than anywhere else in the world. That’s slowly changing. They’re moving away from being dominant to becoming more of a resource.” Elvish has advised investors who use consultants this way. He has seen them ask for specialist advice on asset classes and strategies instead of comprehensive guidance for their portfolios. “What we’ve seen is a gradual broadening of the research base,” Elvish says. “That is consistent with providing more specialised services in particular areas.” Russell Investments is an example of this. As it attempts to re-build its Australian consulting business, it has hired people to focus on aspects of investing that it believes are crucial for Australian institutions.