Articles - The top challenges to becoming a better actuarial consultant

As the pensions world undergoes dramatic changes, with defined benefit (DB) schemes reaching maturity, the role of the actuarial consultant is changing. Trustees are now expecting actuarial consultants to perform multiple roles, be it business partner, service provider, strategic adviser or outsourced administrator.

 By Paul Houghton, Head of Actuarial Consulting at Barnett Waddingham
 According to our ‘Navigating Change’ report, which researched the views of 100 senior trustees from large UK pension schemes, consultants face a myriad of challenges. They are having to adapt to the changing pensions landscape and collaborate better with trustees, more than half of who said they will change – or are considering changing – their actuarial consultant in the next year. So, how can actuarial consultants become better?

 Our findings show trustees often want a fresh approach, but can be unsure what that approach is, or where to find it. The majority of trustees appoint and assess consultant performance in terms of cost savings they can provide. However, this practice poses a challenge for consultants to retain their integrity and deliver the best service possible without compromising quality for cost.

 Consultants need to balance delivering cost-effective services with satisfying trustee needs.

 Adapting to end game transition
 As DB schemes’ priority shifts to managing the potential end game of risk reduction, often leading towards buyout, consultants need to focus their attention on helping schemes manage risk and secure cashflow. This means a change of course for retained consultants, who must demonstrate open-mindedness and stay relevant by meeting the evolving needs of pension schemes.

 The skills that are relevant for this new phase are wide-ranging and include the core actuarial skillset as well as other technical, softer, interpersonal skills and independence of thought. The ability to think strategically beyond the standard actuarial valuation is particularly critical.

 In fact, the report reveals free-thinking and independent advice are two themes trustees value most in this complex period of change. Independence of thought allows a consultant to be unrestricted in offering what they consider to be the most appropriate advice for an individual scheme. This should also deliver a more innovative approach for the next stage of the scheme’s development and help surmount impasses, by focusing on the specific needs and finding the right strategies.

 However, consultants have a long way to go, as almost 40% of trustees reported their consultant lacks these characteristics.

 Shared responsibility
 In the long-term, given DB schemes’ focus on end game transition, a consultant’s ability to adapt and respond to the needs of trustees is paramount. There is no ‘one size fits all’ when it comes to being a good consultant, and understanding the specifics of what each scheme requires should not be underestimated.

 Unsurprisingly, the report reveals four out of the top five challenges for a better consultant relationship are related to communications: coordinating communication and feedback (69%); overcoming internal politics (63%); providing clear strategy and objectives (59%); and providing clear scope/project briefs (56%).

 Ultimately, collaboration and unencumbered advice are the most important ingredients to achieving trustee satisfaction and improving consultant performance. Better engagement between an actuary and trustees makes for a better relationship. This in turn gives the trustees greater confidence in their actuary, and should result in better outcomes for the members. This relies upon consultants ultimately being assessed on how much value they deliver to the scheme.

 Therefore, the onus also falls on trustees to improve communication where they can and establish processes around appointment and evaluation of consultants, to improve trustee-consultant relationships.

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