The growing move to outsource group personal pension assets to master trusts in the U.K. has set off a race between money managers and consultants offering bundled services.
A wave of mergers and acquisitions in the U.K. over the past year has saddled some defined contribution plan sponsors with a jumble of group personal pension plans, industry sources said. Sponsors now are feeling pressure to outsource those retirement assets — estimated to be £160 billion ($215 billion) in 2016 by consultancy firm Spence Johnson — to master trusts because of the high cost of governance and plan design complexities.
"Every firm that offers a master trust is in competition with one another," said David Baird, head of proposition development at Willis Towers Watson PLC, the sponsor of the £2 billion LifeSight Master Trust, as the governance of DC plans is increasing and the plans would rather outsource plan assets to master trusts.
In particular, the three largest consultants — Mercer LLP, Aon PLC and Willis Towers Watson — have repositioned their retirement businesses to emphasize the master trust business, which includes investment consulting, over advisory services they offer to defined benefit plans.
Consultant-led master trust assets are expected to double by 2026 to about £60 billion and could hold one-fifth of all assets in the total master trust market, with gains coming at the expense of master trusts offered by money managers, according to Spence Johnson.
The largest consultants have been extending their access to DC plans since 2012, with the advent of auto enrollment in the U.K., by offering bundled arrangements that incorporate investment consulting, record keeping, investment management and, more recently, participant communication and debt management tools.
As part of the master trusts they offer, consultants now also determine the asset allocation and glidepath for consolidated DC plans. By taking on a larger role in DC, consultants are coming into direct competition with money managers offering similar bundled solutions. However, these managers often provide investment management services to the same consultants' master trusts, so the relationship with consultants has become tricky for money managers to navigate, sources said.
And consultants have one edge over money managers: existing relationships from their advisory businesses, which they can leverage to get better access to DC assets. Sources said having two streams of revenue is more lucrative for consultants so they focus on the master trust business over pure investment consulting.