Towers Watson & Co. is charting a divergent path from fellow investment consultant heavyweight Mercer when it comes to U.K. fiduciary management, a sign that players already are beginning to reposition themselves in the burgeoning field.
Mercer LLC, convinced that significant growth is ahead for what's variously known as implemented or delegated consulting, or fiduciary management, has widened the scope of its offering and is investing resources to capture that growth.
Towers Watson officials, though they expect fiduciary strategies to attract more assets, see it as being a more complementary business, and one that's capacity-constrained.
Broadly defined, fiduciary management refers to outsourcing decisions and implementation that have been the responsibility of pension fund trustees and staff. However, in practice, a spectrum of services is offered, with trustee involvement in setting asset allocation, hiring and firing managers, and hedging liability risks decreasing in more fully implemented models.
Towers Watson dwarfs all fiduciary competitors with £25 billion ($37.6 billion) managed in its Advanced Investment Solutions strategy, which is at the advisory end of fiduciary services, with trustees still quite involved.
Paul Trickett, Europe, Middle East and Africa head of investment at Towers Watson, said fiduciary management won't be right for every pension fund. He views fiduciary management as one end of another spectrum, that of pension fund governance. The firm advises clients they need to either boost governance by adding internal expertise (like a chief investment officer) or external resources (like a fiduciary manager) or they need to simplify (especially through the use of passive investments).
Towers Watson is putting a lot of resources behind low-cost and simple approaches. That includes developing “better beta,” a way to provide improved simplified pension governance. “That's a relatively underdeveloped (strategy),” Mr. Trickett said. It is a scalable solution well within the firm's strengths, he added.
Mr. Trickett said Towers Watson's fiduciary business won't likely ever get larger than £50 billion because it's not scalable. Towers Watson will have to cap the growth of its fiduciary business at some point so it won't detract from the firm's core mission of being an independent investment consultant, he said.
The firm's U.K. investment consulting clients have some £300 billion in assets.
“We think (our current) model works,” Mr. Trickett said, adding that he recognizes a growing demand for delegated services. He said Towers Watson would consider expanding its offering if company executives felt it would add value for clients and there was sufficient demand. “We have to reach a view on whether it's a direction we want to go,” he said.