U.K. firms are looking for new talent

Global money managers are scrambling for the talent and strategies that will work for defined contribution “lifers” — those with only DC plans to provide income in retirement — and with a particular focus on the ever-changing U.K. market.

While this re-emphasis on DC also stretches to the U.S. and Australia, recent changes to the U.K. retirement market in particular have tripped up some money managers and made them realize they need to do more to continue to be relevant in the next phase of the retirement market.

The U.K. has undergone what sources called a revolution. There is no longer a requirement for DC participants to purchase an annuity to provide income in retirement; the government is promoting “freedom and choice” for DC participants; a fee cap of 75 basis points has been introduced for DC default strategies; and automatic enrollment now is widespread among workplace plans following 2012 reforms.

As part of that, and particularly in relation to the increased freedom and choice of participants, money managers are having to come to terms with what sources in money management said is the “retailization” of retirement.

“The war for talent is raging in the DC sector at the moment, not just in the U.K. but globally,” said Paul Battye, London and Leeds, England-based CEO at executive search firm Moorlands Human Capital Ltd. “Our clients from the U.K., U.S. and Australia are fighting hard to ensure they have the best people in place ... (to) remain ahead of the game.”

In 2015 alone, money managers around the world created several new roles focusing on DC, including Legal & General Investment Management, Allianz Global Investors and Aberdeen Asset Management in the U.K. and Capital Group and Northern Trust Asset Management in the U.S.

Other executive search firms have seen a similar increase in demand for DC experience.

“The DC talent pool remains small and with these increased requirements, we would anticipate compensation levels rising for DC specialists as this mismatch between supply and demand plays out,” added TC Jefferson, senior consultant in London at Plenum Group.

Defined contribution assets in aggregate now represent nearly half (46.7%) of all retirement assets combined in the six largest retirement markets: Australia, Canada, Japan, Netherlands, U.K. and U.S.

Australia has the highest proportion of DC assets to DB, at 85%, followed by the U.S. with 58%. The U.K. ranks third, with DC plans accounting for 29% of total retirement assets.

“Another reason we are seeing hiring increases is that, we could argue, institutional (business) looks somewhat homogenous across the globe,” said Justin White, Darien, Conn.-based partner at Casey, Quirk & Associates LLC. “But DC from country to country, and system to system, looks very different. You might have a global head, but what it will take to succeed takes much more local knowledge and relationships. I think (this trend of hiring) is an attempt to get more knowledge and specialization into at least the distribution side of things.”

The distribution point is key, particularly in the U.K., making executives with experience in areas such as insurance companies a target for talent acquisition.

“Money managers had ignored DC, because we had DB,” said Martin Gilbert, CEO at Aberdeen Asset Management in London. “Now we are all scrambling for it. We have to really get to know the DC market now. I think asset management generally has been slow in strategically working out how it is going to do that; we are no exception. A large part of our strategy at the moment is taken up with how we are going to look at the DC market.

“We are trying to get the distribution and strategy guys to really take on people that understand the DC market, perhaps from an insurance company background,'' Mr. Gilbert said. “They are definitely more tuned into the DC market, and have been for a number of years.”

“It is no big surprise (that DC) is a place where we have been getting a lot of questions from firms,” added Mr. White of Casey, Quirk. “There are two reasons: the bigger picture is (that) asset managers (are) recognizing that growth is slowing, and particularly in core institutional markets. As a result we have firms asking themselves, "Where is the next wave of growth? Where can we enter and quickly gain share?'”

He said some firms had focused on DC's adjacency to DB: “In a lot of ways, large-end DC looks and feels like DB — it is driven by professional buyers like consultants and sponsors, is structured around RFPs for strategies. ... But what we are hearing is, yes, there is adjacency, but in many ways (DC) is a very different market. The packaging is somewhat different.”

While DC has, of course, been on the agenda for some money managers for years, one reason for the recent surge is that some firms have “started to stumble a bit,” he said. “You can't just take (the) current distribution force and products and put (them) into this new market. It takes more focus, hiring people with real expertise in DC, to succeed here,” said Mr. White.

That is common across the three largest DC markets. “What (managers) often do not see is that limited understanding of product complexity drives many plans and customers to revert back to the smallest common denominator they understand: fees,” said Josef Pilger, Sydney-based global pension and retirement leader at EY. “I call that self-imposed commoditization. The underlying message (is) managers must become truly client-centric in product and delivery or face further fee pressure, commoditization and asset management insourcing of plans.”

“One way we are thinking about the growth of DC is in terms of the redevelopment of a retail market in long-term savings,” said Gregg McClymont, London-based head of retirement savings at Aberdeen Asset Management. The former shadow pensions minister was hired by Aberdeen in July as part of its push further into DC.

“In DC the relationship with the individual looms larger since ... (the participant) carries the investment risk. The new pensions flexibilities (in the U.K.) encourage further this focus on the individual saver,” Mr. McClymont said.

Aberdeen, like other money managers, offers multiasset income strategies, tailored for the DC market. “But there is only so much one can do on the investment side — I wonder whether the innovation will be as much in distribution as in investment,” said Mr. McClymont.

The firm is focusing on the channels through which these strategies are delivered. In September, Aberdeen agreed to acquire Parmenion Capital Partners LLP. Parmenion provides risk-graded investment portfolios to financial advisers in the U.K. through its online platform. The acquisition satisfies Aberdeen's ambitions to provide digital innovation and services across distribution channels; supports its quest to grow its investment solutions business; and bolsters its U.K. distribution reach, the firm said in a statement when the acquisition was announced.

“We are also working in partnership with (consultant) Hymans Robertson to develop a digital platform using guided outcomes technology.” Mr. McClymont said that uses algorithms to guide participants towards “an optimal investment approach.”

Other firms are drawing on DC talent in the U.K.

T. Rowe Price has engaged Steve Rumbles, managing director of Rumbles Pension Services Ltd. and a former managing director at BlackRock Inc. focusing on U.K. DC, “to consult on some of the logistical aspects” of its U.K. efforts. “We continue to look at developments in the U.K. pensions market and evaluate how our expertise and potential investment product offerings can best align with client needs,” said a spokesman in an e-mail.

And still others are drawing on their experience in other markets. “There is a lot of DC capability from countries such as Germany that could be distributed across the U.K. with a little adjustment, and we are beginning to see global managers invest in making this happen,” said Plenum's Mr. Jefferson.

Allianz Global Investors appointed Iain Cowell as director, global solutions, head of U.K. and Ireland, in London in July. “There is a lot of focus on trying to take the best learnings (from) across Europe, and looking at how those can be brought to the U.K.,” Mr. Cowell said. “For us it is about extending our product range from where we are, and, more importantly to us, it is about the route to market.”

As the firm does not have direct access to the end user in U.K. defined contribution plans, “we work with advisers, platforms and employee benefits organizations; we are very much focused as the solutions provider, with us (bringing) the underlying investment capabilities and knowledge from around the world. These advisers are at the heart of the relationship, and we cannot forget that. It is an interesting environment and therefore, truly, I cannot turn around and say we are going to launch a Big Mac next week. We will develop the pickles and improve the cheese, and then the person spending time with the client will put it together for the right outcome,” said Mr. Cowell. n