Is the Trusted Adviser dead?

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Although this article was based on a discussion with a professional actuarial business the contents equally apply to legal firms. Work with your clients and professional connections to develop long term and trusted relationships. We will cover more of this in our session at the Legalex conference.

Is the Trusted Adviser dead?

A senior partner at a major actuarial firm recently told me, “the market for advisers has changed. I often find you invest a great deal with a prospective client, only for their adviser selection process to introduce their procurement team. They typically have little understanding of what their trustees need. I wonder if clients even want a trusted adviser anymore.” Strong words, and no doubt someone who has been bruised by a recent experience. However, it raises a valid question about the role of advisers, and how trustees could and should go about choosing them.

Why review your advisers?

There are lots of reasons, but I would suggest they fall under two main headings:

1. You believe it to be ‘good governance’ to review the market, benchmark the fees you pay and understand what else is available

2. You have a need that is not currently being met

Good governance

This is based on the premise that you don’t know what you don’t know. A review and some discussions with potential advisers may help you understand what is possible. It will also help you to compare solutions, approaches and costs.

It’s important that your approach is proportionate to what you’re trying to achieve. Whilst you should keep an open mind, if you’re essentially happy with your advisers, their costs and approach, a full-scale review of the whole of the market may not be the best approach. Sure you may learn things in the tender and pitch process. However, it will cost you in terms of time and opportunity cost. As a trustee, one of the questions you should constantly ask yourself is: “Is this the best use of my time?” or, rephrased: “What should I be doing that will have the greatest impact?”

You also need to consider whether any issues or concerns you currently have are based around the cultural approach of your adviser firm, or the style of the individual. Issues with individuals should be resolvable, even if ultimately this needs to be achieved via senior level discussion about alternative consultants. Cultural misalignment is more fundamental. Danger signs include:

• service delivery issues

• incompatible styles – too assertive/not assertive enough, too much detail/not detailed enough

• an approach that appears to be geared towards selling their latest ideas to you

• ideas that simply don’t fit you or your needs

• fees that simply don’t feel like they represent value

An independent adviser (or third party evaluator – ‘TPE’) can help in this regard. They can advise on whether you and your adviser are indeed closely aligned, or whether a market review will generate a benefit to you. They will also help you to understand where better alignment could be obtained, and thus streamline your review process.

In my experience TPEs will add value, but your own objectives and approach to the exercise are more important. You must be prepared to challenge what you hear, and be prepared to be challenged on what you believe. There’s no point inviting firms to showcase their best people and ideas if you’re not prepared to help them prepare or be receptive to new concepts.

If your sponsor’s procurement team has to be involved, this needs to be managed carefully. In particular, you need to understand what success looks like, and this may mean that a procurement-style scoring matrix doesn’t work too well. It may help you assess who has the best systems, the most qualified people, the most clients, the largest team and the highest level of PI cover. However, you should take much of this as given. You’re not (at least most trustees are not) looking for the biggest, cleverest or most accredited firm. You should be looking for someone who understands your world, can help you prioritise your problems, articulate potential solutions, and guide you through your own decision-making process. Not many matrices cover this.

This is the trusted adviser concept. It relies heavily on ‘softer’ skills, such as:

• compatibility – empathy with your world

• listening ability (yes, really – set them a test!)

• how they can articulate complex matters (now we’re onto this idea, set another test – ask them to explain, say, a longevity swap)

• can you work together?

A need not currently being met

Having worked in business development roles, I have often discussed with trustees whether there are economies of scale to be derived from using one firm across all services, or whether trustees should pursue ‘best of breed’. There are a number of factors to consider here, many of which will not be new to you. They include:

• size of scheme and sponsor

• commercial economies, i.e. fee deals being offered for combining services

• how closely aligned the various practice lines of the advisory firm are, e.g. are the actuarial and administration teams on the same floor of the same building, or are they in separate buildings, in different cities and occasionally different countries?

• management structure of the various practice lines, and how they inter-relate

• firm-specific strengths and weaknesses

• I would add another which is more recent, if not completely new. As defined benefit (DB) schemes mature and progress along de-risking journey plans, individual projects arise that have probably not been needed before. Moreover, the industry has probably not been used to dealing with the issue before. Examples include:

• medically underwritten buy-in exercises

• trivial commutation exercises

• GMP reconciliation

• DB to DC transfers, including partial transfers

Whilst most advisers will have completed exercises for each of these and in many other niche areas, it’s unlikely that your incumbent adviser will be the market leader in everything. Your best option may well be to seek out an adviser who can specialise in your niche need and provide an excellent job, whilst not threatening your existing adviser relationships. Now only a trusted adviser would suggest this to his/her client…

The trusted adviser is not dead

So the senior partner I referred to earlier was wrong, it is still a pre-requisite. There is much background on this, the best of which is the definitive ‘The Trusted Advisor’ by David Maister, Charles H. Green and Robert M. Galford (2000). One of their definitions that should resonate is that a relationship with a trusted adviser should be a combination of both a strong personal and professional relationship, i.e. there is mutual trust on both levels.

How do you find this? You keep an open mind, you challenge those you meet, and you come prepared to have your own beliefs challenged. Then you trust your instincts and ask the questions you believe are most likely to reveal whether a trusted adviser lies beneath the surface.

Not scientific enough for you? Not corporate enough? Inconsistent with your procurement team’s approach? Maybe not, but it’s more likely to be effective.