Dual Consulting
Investment consulting models in South Africa still lag behind the international governance trend which insists on absolute independence of the investment consultant. This article explores the reasons for this lag and looks at the emerging concept of a dual-consulting model.
The role of investment or asset consultant is well entrenched and accepted in the south African retirement fund industry by now.Board of trustees need except advice in developing complex strategic around asset allocation, life-stage models and asset manager selection. Yet investment consulting models in south Africa still lag behind the international governance trend, which insists on absolute independence of the investment consultant paving the way for a new approach. a few of the larger retirement funds in south Africa have now adopted a dual-consulting modal. This involves appointing two investment consultants, who are independent of each other, to provide investment advice.
The dual-consulting modal could act as a peer review mechanism. The concept of peer review is well established in academia, the science and actuarial profession, so why not investment consulting? When applied to complex retirement fund investment decision, peer review should deliver the same quality of thought process, leading to better outcomes for all retirement fund stakeholders including members, the regulator and government .
How does it work?
The investment consulting companies either have overlapping or non-operative service level agreement with the retirement fund. In the former, the retirement fund effectively receives two options on the same matter. This allow greater debate of complex investment matters to improve overall investment decision-making and may also instil confidence in the board of trustees in the decisions that they have taken.
Where the retirement fund awards separated and non-overlapping services level agreements to the investment consulting firms, the fund recognises the strength (and weakness) of the two consultants and seeks to use their respective and complementary areas of strength. A degree of healthy competition between the two investment consulting companies should lead to better services levels for retirement funds.
What of existing single-consulting model?
Writing over several years on potential conflicts of investment consulting, farmer’s personal finance editor Bruce Cameron stated that investment consultants are meant to act as ‘Watchdogs’ for retirement fund trustees. They should retain some distance from other services provided (rather than receive remuneration from or build business relationships with them) in other to remain as objective as possible. Investment consultants should only generate fees from providing independent investment advice to align themselves completely with the interest of their client’s however this is a challenging business model and as a result there are only a few truly investment independent company in south Africa that fit this mould.