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Employee Benefits
Sunday, February 1, 2004
More choice, harder decisions

The role of an employee benefit consultant, to provide advice to Trustees, has changed significantly in recent times.

Prior to the early 1990s the vast majority of funds were defined benefit, so members had no choice and hence the need to communicate with or to educate them was limited. In addition, investment times were good, so there was little to worry about there either. The major focus was how to finance the fund.
Fortunately, (other than 1987) investments performed well. As a result a major activity of funds was how to spend the investment surpluses being generated. A major consulting role was comparing fund benefits against their peers, and consequently, proposing a series of benefit improvements.
“But today,” says Neil Lloyd, Head of Retirement Funds consulting, at Alexander Forbes Retirement Funds, “it is a whole new ball game, and there’s no doubt the role of a consultant has become far more difficult. Consultants need to assist Trustees and members in managing volatile investment returns.”
The move to defined contribution funds has led to many changes for members and employers alike. These funds provide variable benefits, generally a function of contributions and investment returns.
Better withdrawal benefits are a feature of defined contribution funds. “Although this is an improvement, better benefits lead to a greater chance of members squandering their withdrawal benefits,” he points out. “The consultant therefore also needs to assist Trustees and members in understanding the negative consequences of cashing-in withdrawal benefits.”
Choice at retirement is similarly a feature of defined contribution funds. While choice is seen as a desirable characteristic, consultants need to try and put structures in place that assist members to obtain good advice in relation to the options they want.
The employee benefit environment has also significantly changed. Never has there been so many legislative developments and, at the same time, there is extremely volatile and poor investment returns.
A successful consultant must:
• Have industry expertise;
• Be a legal expert;
• Be an investment expert; and,
• With a bit of luck, have good people and communication skills

Of course an increasing trend of funds has been the introduction of choice. The most common is investment choice, but some funds also offer choice of contribution and/or risk benefits. On such funds Trustees have a responsibility to ensure that members are in a position to exercise such options. Where wide or even limited choice is offered, the consultant needs to act as a financial coach, to try and ensure a framework or model provides members with a guide on choices. This is no easy task given that the consultant is unlikely to be able to deal with members one on one.
Mr Lloyd says that in days gone by, consultants may have been able to get away with ensuring the Finance Director alone understood the investment strategy. Not today. “Where investment choice is available to members the consultant needs to ensure the ordinary members can establish an appropriate investment strategy.” This requires an education and communication strategy that will be tailored to the client, but may make use of:
• Paper-based (understandable) literature;
• Group presentations;
• Internet sites;
• Video presentations; and,
• Benefit projection tools.

“Today consultants need to have legal, industry and investment expertise in addition to good people, communication and financial coaching skills. At the same time, the consultant must comply with the increased requirements of legislation such as the Financial Advisory and Intermediary Services Act,” says Mr Lloyd. No longer can the consultant merely be the chap who shares a four-ball with the bank manager each Wednesday afternoon. 

Copyright © Insurance Times and Investments® Vol:17.1 1st February, 2004
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