Adapting the business to a changing market is the top priority for Mercer’s new UK chief executive and market leader Fiona Dunsire. Succeeding outgoing CEO Alan Whalley in February, Dunsire wants to see the EBC giant continue to move beyond its traditional territory of dealing with trustees to forge stronger relationships with both employers and employees.
The appointment of Dunsire, who has spent most of their career in the organisation’s investment business, is a clear indication of where Mercer is going.
“It is the first time we haven’t had someone from a retirement background leading the firm.
It is no way a revolution, but it is an indication that we recognise our market is changing. Mercer has great respect for the work we do with our trustee clients. But recognising those relationships are changing as DB schemes mature and in the way we deliver DC changes. So we need to develop our relationships more broadly.
“I have been involved in areas where we have been successful so it is about taking those skills forward and develop them into new markets,” she says.
While her predecessor Whalley took the top job at arguably the nation’s biggest EBC as an outsider from Watson Wyatt, Dunsire is a dyed in the wool Mercer person, having joined the firm as an actuarial student in 1988 since when she has never left. Having spent the vast part of her career in Mercer’s investment business, which she led from 2005, her appointment clearly represents an acknowledgement of the increasing significance of DC to the firm.
“Mercer Workplace Solutions has brought together all our different DC solutions, whether trust-based DC with a third-party administrator, bundled trust-based DC, contract-based DC or individual savings through a corporate Isa, and the investment solutions we have sit underneath and are consistent across the spectrum. We wanted to make sure the institutional quality and governance that has been there in DB to be there in DC,” she says.
Sharing expertise, data and information across new markets is key to her strategy for business growth. This extends both to greater relationships with employers and new initiatives in the B2B2C arena.
“This is not a 90 degree change of direction but we want to have more and deeper relationships with the company or the buyer. Companies are increasingly going to be the buyer. As soon as you move from trust to contract it is the company that is making the decisions. We have to be respectful of where there are conflicts of course. But in many areas there aren’t conflicts so we want to have as deep relationships with the companies as we have with the trustees,” she says.
“And if you look at any of the data on what the top issues for companies are, it is talent and people issues. We have deep capabilities in talent, benefits, reward and engagement. So making sure all the capabilities Mercer has can be delivered is one reason why we need to develop those relationships further.
“We have a mission statement that says our goal is to enhance the health, wealth and performance of our clients’ most vital assets, their people. These seem laudable things to want to do. And they sit across the offering we have, which is a large health and wellness business; wealth goes into retirement savings and reward, and performance is around engagement, where people feel properly rewarded.”
For Dunsire part of this means a greater role for prevention through health and wellbeing strategies.
“When you look at how employers tend to spend a lot of money on the people who become sick, and analysing their cost, their spend is on a small proportion of their workforce that takes a large proportion of the cost and their lost productivity. Transfer some of that cost into some of the preventative measures offered through health and wellbeing and they could get a significant return on investment,” she says, adding Mercer is in the midst of work identifying the value different benefits deliver to different employers and to different parts of the workforce. But how can the industry get over the challenge of getting robust data?
“We are doing work in this area and generating harder data is part of my plan. From a client’s point of view we see there are four priorities – talent, benefits, DB and DC pensions. And we will be coming out more vocally about how you can structure your benefits around that to address those issues.
“Employers still want to give something that is useful and valued. Employees would value more flexibility, including choice, not just in pensions but also into corporate Isa.”
But aren’t employers too preoccupied with auto-enrolment to even think about corporate wrap functionality?
“People like something where they have the ability to flick switches in the future, although our experience has been there hasn’t been a huge amount of money going into the savings options. That said, we have got more clients doing it than any of the providers,” she adds.
And does she put this down to a suspicion of a conflict where corporate wrap is put in place by a provider? “I think there is a healthy scepticism where providers are using their own structures and funds,” she says, emphasising that the consultant’s governance process means B2B2C can be a big new business growth area for Mercer.
She points to the concept of benefit exchange, a US concept that goes beyond flex, as a solution that could be imported into the UK. January saw the US launch of Mercer Marketplace, a private benefits exchange designed to help employers more effectively manage their benefit costs while providing employees and their dependents with superior choice, flexibility and service.
“It offers more choice underneath than in flex, in that the money comes in and the employee goes to the exchange to decide what they want and how they spend it, and it includes voluntary. It is an example of how businesses can go B2B2C, and that is a good thing because we can enhance the offerings for employees and members because they ought to be able to get some of the institutional scale and quality and buying power at lower cost. So that expansion of all of that is a great opportunity for the future,” she says.
So does she see the workplace becoming a new high street?
“Yes, I do see that. There are risks associated with that as well. It potentially takes your business in a retail direction and we will want to make sure we are properly positioned and scaled to do that. But we are not talking about Mercer suddenly becoming a high street outlet overnight,” she says.
“We are looking at how we can do B2B2C across all areas. There is a lot of information that we use in our consulting that we could use in a different way without it damaging our consulting. So we are constantly thinking about where do we have skills and information that we can distribute to different markets and therefore grow our business and produce something useful for the users which doesn’t in any way damage or undermine what we are doing elsewhere.
“An easy example of that is the work we do in terms of our investment advice to wealth managers. We don’t quite go retail but we are increasingly providing our investment advice either to organisations that are private client wealth managers or IFAs and they use our research to screen funds, and build their portfolios from it,” she says.
In the DC pensions market Mercer has an arguably unique model that some rivals might refer to privately as a multi-tie. But this is not a description that Dunsire recognises.
“I don’t see it like that because we have done a full market search. We continue to search the whole market and hold up the providers we are using to market standards. We are willing to change providers if we feel there is a need to do so. Clients are therefore getting best of breed. They have effectively had a long list of the whole of market brought down to a short list. There is a lot of talk out there about what people have built that is not backed up by delivery. All of the providers have had to put a lot of energy , money and commitment into building new platforms and new capabilities, and they have had a lot of things to deal with simultaneously But in many cases what is talked about is not already there.
“But we are open about the fact that what clients are getting is a process that has been carried out for them but they still can select between them, but with underlying governance happening on an ongoing basis. So I am very comfortable we are serving client needs while keeping standards high,” she says.
She is rather more critical of some of the conflicts of interest she sees as inherent within some of the master trust structures on the market.
“If you have one organisation that is professing independence but actually is the trustee and fund manager and everything else throughout, how realistic is it to think they will at some point change their administration or their funds? I see that as a weakness in those models although the master trust does appeal if you can address these issues,” she says. “But there have been more headlines on this than action. When we look across our client base we are not seeing a huge move across into master trust.”
And how concerned is she that the wheels might come off the auto-enrolment train because of pressure on providers?
“There are going to be winners and losers out of this. There are going to be pressure points.
And some companies have been slow to engage on the issue because it is a ‘next year’ issue. If you have got changes to make, that is where you are likely to be stuck in the queue. And if you get on with it sooner, your costs will be lower. Companies may have decided to push auto-enrolment into next year for this year’s budgeting purposes, but that may prove to be a false economy,” she says.
While smaller intermediaries want to see consultancy charging given the green card for implementation, Dunsire wants to see it get the all clear for ongoing services that are of clear benefit to the employee.
“The biggest question is what is your asset strategy. And there is a bigger charge for a better asset strategy, which is more diversified and accesses different asset classes. If you could deliver something like that giving you a similar return but with half the risk, that is worth spending a consultancy charge on, because that is real money people would have in their hand at the end of the day,” she says, clearly talking about a basis points on the AMC model rather than a first year percentage of contributions model sought by some advisers.
“It would be inappropriate to think no value is being returned for that. Otherwise the risk then is that you have a race to the bottom that doesn’t give the outcomes that people want. That then increases the risk of misselling on the basis of why have we all invested in pensions that have not delivered what we wanted them to,” she adds.