Plan Sponsors Gravitating Towards Consultants

Plan sponsors continue to rely increasingly on their consultants and custodians for risk management and performance measurement services, and are surprisingly less concerned with costs than is widely believed, according to the recent PLANSPONSOR/The Bank of New York Research Study on Risk Services. The survey said that although cost has been seen as a hurdle for providers of risk management and performance measurement services, the 167 plan sponsors interviewed said, when asked to rank the most important criteria in a risk services provider, pricing was the least important (just 12% of respondents ranked it first among four criteria listed). Similarly, when asked what is most important in their custodian relationship, pricing was cited again as least important (just 7% of plans said that pricing was paramount).

The most important factors on plan sponsors’ minds were: Product Capability: 63.5% of plan sponsors ranked it first among four criteria. People: 31.7% of plan sponsor respondents ranked it first among four criteria , while 32.7% surveyed said it (and the client service team) is the most important factor in determining a custodian’s value. Technology: 17.4% ranked it first among four criteria and 23.0% of plan sponsors said it is most important in the relationship with a custodian. Comprehensive Range of Services: 35.8% of plan sponsors said it is most important in assessing the value of their custodian. About 68% of respondents say consultants are perceived to offer the best risk services, while 15.3% of plan sponsors said that about custodians. The vast majority of plan sponsors use either their consultants or their custodians to perform their risk and performance analysis services: 89% of plans use consultants or custodians for Performance & Analytics. In the past, consultants were the major players in this space, but the survey showed a trend toward usage of custodians in this arena – 55% of respondents who have increased risk services used from custodians added Performance & Analytics to the list.

There are still some areas where plan sponsors are slow to hand over control and integration of products, the survey showed. For example, in the area of Compliance Monitoring, 38% of plan sponsors perform this function in house. Of the plans that do outsource this function, most (58%) use their consultant or custodian and the growing complexity of compliance is likely to oblige more and more plan sponsors to look at outsourcing. Plan sponsors showed a desire to understand where they rank among their peers with more than 70% of the survey respondents indicating that universe comparisons were either “Useful” or that they “Can’t live without them.” In early March 2004, 167 responses were collected from plan sponsors to a questionnaire designed to better understand how institutional investors rely on risk management services (e.g., performance measurement, VaR, etc.) and how providers can better meet their needs. The questionnaire, developed jointly by The Bank of New York and PLANSPONSOR, consisted of 22 questions on which risk services are used, which types of providers perform these services, how they are delivered, and how useful the services are to plan sponsors.

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