WAYNE, Pa. -- Plan Sponsor Exchange Inc. has acquired Asset Strategy Group LLC, a deal that threatens to move investment management consulting onto the web and to place pressure on fees.
The acquisition provides an enormous amount of content for the Wayne-based group's website, PlanSponsorExchange.com, and provides vast new distribution for Los Angeles-based Asset Strategy, which already has assumed the Plan Sponsor Exchange moniker.
Terms of the deal were not disclosed, but all of Asset Strategy's 53-person operation will have equity stakes in the parent, compared with only 10 before the deal.
The deal radically alters the way the 10-year-old Asset Strategy Group -- with 55 institutional clients responsible for more than $150 billion in assets -- does business.
For starters, Asset Strategy is slashing its retainer fees to the $25,000 to $50,000 level from $100,000 to $400,000. It is doing so by abandoning traditional performance measurement reports and discouraging in-person meetings, instead encouraging electronic delivery, phone calls and video-conferencing.
The firm also has:
* Placed its entire manager database, with nearly 1,000 managers and 3,000 products, online free of charge to pension executives and other consultants. Money managers will not be charged for submitting data but eventually will pay a fee for using and manipulating data.
* Created an eight-step process through which pension executives can design and conduct a manager search entirely online, sorting managers and products by asset class, performance, risk characteristics, ownership and other factors. Manager profiles will be posted online shortly.
* Adopted a new business model that will generate revenue from other sources, including database sales, transactions occurring on the site, and additional volume generated by the website.
"I think it's the way of the future," said Dick Piket, senior investment officer-fixed income at the $12 billion San Francisco City & County Retirement System, an Asset Strategy client.
Lawrence Davanzo, managing director of Asset Strategy, said: "If the Internet is going to help the money owners, the pension funds, it has to be done in a way that puts the stuff in their hands, but also provides fiduciary backup where you need it. This abolishes the concept of big retainer consulting fee relationships and transforms it in a really radical fashion."
Asked how the consultant could swallow such huge fee cuts, he responded: "You can't ask that question any more. That model doesn't make sense any more."
Plan Sponsor Exchange officials hope the entire institutional investment industry will adopt its database as the industry standard.
"We would hope of course that this would be an online utility for the plan sponsor community," said Frank Minard, president. "We are really hoping we can revolutionize the industry."
Messrs. Minard and Davanzo emphasized the database is available free of charge to other consultants, who still would provide advice to their clients without going through the costly exercise of maintaining their own databases.
"There are probably over 300,000 money owner groups out there. We're not going to work with 300,000," Mr. Davanzo said.
The question is on which part of the market Plan Sponsor Exchange will have its biggest impact. Mr. Minard said two-thirds of pension plans have $100 million to $500 million or less. They tend to have part-time pension professionals and sometimes can't afford to hire a consultant.
But the website also will be tilting toward large public plans by, for example, shortly listing an emerging manager database.
Consultants not threatened
Other consultants don't feel threatened by Asset Strategy's changes.
"I don't see them as a competitive threat to what we are doing," said Michael Phillips, president of the Frank Russell Co., Tacoma, Wash. "But I think in the midmarket it could work very well."
Consultants said larger clients still demand in-person visits. "I believe the increasing complexity of the fund management industry and the search for higher returns for each unit of risk leads people to need more face-to-face advice on complex subjects," said Roger Urwin, global head of Watson Wyatt Worldwide's investment practice, Reigate, England.
Ron Jones, principal at Hewitt Investment Group, Lincolnshire, Ill., however, questioned whether many midsized clients would embrace the do-it-yourself RFP process on the website.
"It's a little hard for me to imagine the client spending time online researching the managers when they can have their consultant do it for them. They're not in that business," he said.
Echoed Steve Nesbitt, senior vice president at Wilshire Associates Inc., Santa Monica, Calif.: "It takes quite a bit of knowledge to go on a website and build a search." Wilshire's Compass program is a consultant-in-the-box product aimed at the higher end of the pension market, he noted.
And Mr. Jones doubted Asset Strategy's fee-slashing will affect the rest of the industry. "I think the industry is too fragmented and I don't think Asset Strategy is a pricing leader."
Posting the database on the website also threatens existing money manager databases that charge for services.
Pensions & Investments publishes its own manager database, the Pensions & Investments' Performance Evaluation Report. P&I's publisher, William T. Bisson Jr., declined to comment.
Robert Padgette, senior vice president of CheckFree Investment Services -- which acquired Mobius Group last October -- did not respond to a query about the effect on Mobius' money manager database.
By and large, Asset Strategy clients say they are taking a wait-and-see attitude.
Anne Bahr, executive director of the $4.3 billion Milwaukee Employees' Retirement System, said trustees "feel more comfortable" having the consultant present at meetings.
The question, Ms. Bahr noted, "is whether we will be able to pick up the slack internally," adding the system now is looking to add two full-time investment professionals to support Chief Investment Officer Jennifer Shannon.
Building a business
The Asset Strategy acquisition is the most dramatic step in Plan Sponsor Exchange's plans for building its business. It already is constructing 30 money manager "showcases," which provide hyperlinks to specific products and then to manager websites. On average, managers are paying about $40,000 each to display their wares.
The firm -- with 121 employees after the Asset Strategy acquisition -- has taken several other recent steps to develop its website and build traffic.
It acquired Route401K.com, Boston, geared to help small businesses find and hire bundled 401(k) providers. The website, which was incorporated into PlanSponsorExchange.com, will be expanded greatly from 16 vendors, will add content and interactive features, and will expand to larger 401(k) plans, said Stuart Hilger, who heads that area.
It also built the website for the Financial Executive Institute's Committee on Investment of Employee Benefit Assets. Members use PlanSponsorExchange.com. to access the protected site.
The company also hired veteran industry journalist Richard Chimberg as editor of its customized news service. Like Bloomberg's newswire service, where he last worked, Mr. Chimberg said Plan Sponsor Exchange's service will provide continuously updated coverage, but with a focus on the investment management industry globally,
Plans are to hire a sales team of 20 to 25 people by April to sell advertising on the website to money managers. Salespeople also will run roadshows across the country to train pension executives on how to use the site.
Plan Sponsor Exchange already has beefed up its internal staff, hiring Denise Campbell as vice president of marketing from Ubid.com, a business-to-consumer online auction space, and Paul Margolis from Plan Sponsor Network as director of advertising and communications, said Nina Lesavoy, chief sales and client services officer.
Meanwhile, plans are to push into parts of Europe, including the United Kingdom, the Netherlands, Germany, Switzerland and parts of Scandinavia, Mr. Minard said. The firm already has 65 British pension funds registered on the site. Japan is the next natural target market, he said.