New wealth business being created to help solve retirement puzzle
As its clients become more focused on keeping plan participants out of poverty in retirement, Mercer Investments is reorganizing.
Because a growing number of institutional clients are asking Mercer to model individual retirement outcomes and look at how to reduce the number of people falling into poverty in retirement, the consultant is combining its investment and retirement consulting practices into a new wealth business.
Modeling individual outcomes has become important to Mercer's plan sponsor work. It's no longer a matter of figuring out the plans' median outcomes.
Mercer officials started streamlining operations after the Oct. 20 announcement that Phil de Cristo, the company's president of investments, would leave effective March 31.
After Mr. de Cristo leaves, Mercer, which has more than $9 trillion in assets under advisement and $157 billion under management, will formally combine its investment and retirement consulting practices.
The company in January made some leadership changes to start that process.
The changes include:
- Jacques Goulet, previously glo-bal president for Mercer's retirement and health businesses, is leading the wealth and health businesses globally for Mercer;
- Tom Murphy, head of Mercer's defined contribution and financial wellness unit in the U.S., is the wealth business leader for the U.S.;
- Andrew Kirton, chief investment officer for EuroPac, has become global chief investment officer for Mercer Investments; and
- Rich Nuzum, formerly North American business leader at Mercer Investments, is now leading the wealth business across growth markets (Asia, Latin America and South America).
“Our goal is to better serve the client that is managing two different numbers: the value of the assets and the value of the liabilities. This makes it simpler for us to serve the clients and for the clients to engage with us,” said Mr. Goulet in a phone interview.
Mercer defines “wealth” very broadly, capturing all of its activities in the retirement, investment and financial wellness areas. Its health business, meanwhile, provides services from advice through to implementation around health and non-retirement-related employee benefits.
Mr. Goulet went on to explain: “The wealth division aligns better with our clients' needs. We hope to help clients across a broad set of capabilities and solutions that goes from speaking to an expert on investing in alternatives to speaking to somebody that will devise a strategy that has them unload a (closed) pension plan to an insurance company.”
Mr. Murphy explained that prior to this restructuring, Mercer had separate retirement, or annuities, and investment, or institutional, businesses.
“Our DB clients, many of whom are in derisking mode, need deep expertise, a balance and agility in decision-making and deciding when to derisk,” said Mr. Murphy in a separate phone interview. “More and more, our consultants have been working hand in glove, so working under one business makes sense.”
An example of this would be when a pension client starts to derisk, moving their assets from a growth portfolio to a hedged portfolio. Both Mercer's retirement and investment consultants are involved. Its investment consultants help clients understand the asset strategies that can be used to hedge the pension liability; while the retirement consultants help clients understand and define the pension liability, required cash contributions and financial reporting requirements.
In many instances, these consultants are already working together. By putting the businesses together, it's easier for them to work together and develop the most effective solutions for its clients.
He added that this restructuring will make the delivery of services to clients “more seamless.”
Despite the new division being labeled Mercer's wealth business, Mr. Murphy said that is not a sign the company is shifting from institutional investment consulting and more toward advising retail or individual consumers. Rather, it is an indication that Mercer is aware the plan participant is the end user.
“ Mercer's been looking at the evolution of the marketplace and has been conscious of where assets are flowing. Most of our money has come from institutional and it's still a mainstay of our business. But we're conscious of the rise of the individual,” he said.
Mercer hasn't created services that are directly available to individual consumers in the U.S., but is “developing offerings with the consumer very much in mind,” Mr. Murphy said.
The new president of U.S. wealth cited Mercer's financial wellness platform as a good example of developing services for institutions with the individual investor in mind.
Launched in June, the financial wellness platform is a digital platform whereby employers can provide their employees access to expert consumer financial services providers, including spending and budgeting tools from personal finance app Plaid, Transamerica's retirement counselors and Experian's credit score management services.
“We make this offering available to our institutional clients, who make that platform available to their employees,” Mr. Murphy said.
Mercer is one of several investment consulting firms restructuring its business or consolidating as the result of the evolving investment landscape. Investment consultants including Cambridge Associates LLC, Innovest Portfolio Solutions, Segal Rogerscasey, Pavilion Financial, Strategic Investment Solutions Inc. and Verus have either reorganized or merged in the past year or so.
Institutional investor clients of Mercer contacted for this article seemed unconcerned with its changes in business structure.
“We do not think it will affect our relationship with Mercer,” said Jalissa Hills, spokeswoman for the $28.4 billion Indiana Public Retirement System, Indianapolis. “We currently partner with Mercer's real estate consulting team, which is a part of their investment consulting business. We do not utilize their retirement consulting services.”
No real estate impact
Ms. Hills added: “While these two groups are combining to offer a single point of contact for their clients who do utilize both services, Mercer has confirmed that the creation of their newly named wealth business will not impact the real estate consulting team or the way they interact with their real estate consulting clients.”
John Kuczwanski, spokesman for the Florida State Board of Administration, Tallahassee, said in an email: “The SBA has had a positive relationship with Mercer and does not expect material changes in our relationship with them.”
Florida SBA oversees a total of $186.2 billion in assets, including the $146.1 billion Florida Retirement System. Mercer is its public market implementation consultant.
The New York City Retirement Systems recently hired Mercer to assess exposure to risks from climate change.
Jack Sterne, a spokesman for city Comptroller Scott Stringer, the fiduciary for the five pension funds in the $170.6 billion system, said: “The comptroller's office fully believes Mercer will be able to complete this analysis as planned.”
Mr. Nuzum said the reorganization is a matter of “form following function,” and reflects the evolution of how clients are looking to use Mercer's capabilities.
“Historically, we've worked for institutions — plan sponsors, corporations or governments. Increasingly we're working for financial intermediaries (including pension funds), or we're putting stuff out in public demand intended for use by individuals and financial advisers. So, the shift is from institutional buyers to individual buyers for our services,” Mr. Nuzum said.
In Mercer's DB and DC work for sponsors, institutional clients are now asking the firm to calculate participant-level outcomes, Mr. Nuzum explained.
Douglas Appell contributed to this story.
This article originally appeared in the March 20, 2017 print issue as, "Mercer combines units to meet clients' shifting need".