Has DC consulting come of age?

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Defined contribution schemes are becoming more likely to have a dedicated investment consultant rather than share one across DB and DC, consultants have said. As assets grow and DB prepares for the endgame, how is the DC consultant market evolving? 
 
While it is a requirement for trustees to take advice on investments, before the introduction of freedom and choice, hybrid schemes would often ‘share’ a consultant across their DB and DC sections – with the result that much more time was spent on DB. 
 
“It was quite common to open up a DC scheme within the same trust,” says head of DC consulting at Hymans Robertson, Mark Jaffray. “Essentially you’d have the same trustees and the same set of advisers advising on both DB and DC. That picture has changed quite a bit,” he notes. This is partly because the dynamics are different now, with DB winding down and DC focused on getting members to pay contributions.  
 

DC advice has become more specialist 

 
The reforms prompted some consulting firms to set up dedicated DC teams, relying on specialist expertise as the sector suddenly became much more demanding and prominent – a development that is continuing, with growing focus on environmental, social and governance investing and integration of illiquid assets. 
 
As the asset base grows, investments will become more prominent, says Jaffray– with their current size, a DC scheme tends to be “limited to what it can do with investment”. 
 
At the moment, the fees are still largely found in DB, which needs “lots of hands-on advice and expertise” to manage the transition to buyout or self-sufficiency; “because of all of that... you’d expect schemes spend more on DB advice”, he says. 
 
Around a tenth of Hymans’ fee take comes from DC according to Jaffray, but he expects DC assets in the UK to grow to £3tn and the consulting market to grow as well. “It’s a big number, and you’d hope there is room for advice there. We still find it attractive and are investing in it,” he says.  
 
DC advice looks like it could become a key area for the second-tier consulting firms, as the big three have put considerable effort into creating products rather than advice for the DC market, although they do still advise on DC. The recent investigation by the Competition and Markets Authority into the investment consulting market did not find that this conflict has led to a competition problem in the sector, however. 
 

‘DB guys used to snigger at DC’ 

 
Market growth is leading to greater demand for DC consultants, but it can be difficult to find people with DC experience.  
 
“I would say there is a shortage of really experienced people in DC,” says Jaffray. Generally, “it's quite difficult to get people full stop at the moment”, both in DB and DC. He puts this down to increased demand because of a number of regulatory initiatives leading to extra work, as well as competition from asset managers, which tend to pay higher salaries. 
 
Maria Nazarova-Doyle, principal and market engagement leader DC & individual wealth at Mercer, agrees the days a consultant could advise on both DB and DC are largely over, as DC investment is being taken “much more seriously” since the freedom and choice reforms. 
 
“Just a few years back anyone could pick up and do DC,” she says, and “DB guys used to snigger at DC... but they don’t laugh at us anymore, they come to us for help”. The industry recognises that DC advice is “not an easy job”, she says. “It’s a difficult job. It's a very busy job as well.” 
 
This, combined with the fact that DC is still a relatively new area, means salaries are no worse than for DB, and there might even be a premium for DC experience, although there is no comparative data on DC versus DB consultant salaries. 
 
“I don't know if there are salary differences. I would be very surprised,” says Nazarova-Doyle, as the qualifications are now often the same – she believes most consultants either already have a CFA or are studying towards one. 
 
How will the DC consulting market evolve in your view? How should it evolve?

Maria Nazarova-Doyle
Rona Train
Paul Macro
Lynda Whitney
Paul Armitage
Donny Hay
 

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