However, trustees do consider changing their advisers for all sorts of reasons including a decline in service levels, poor quality advice, a change of trusted personnel at the adviser, or increasing fees.
The process of replacing an existing adviser is fraught with potholes. Being aware of the practical challenges and the psychology that can drive your decision-making in these situations can save you time, money and stress and help ensure you get an adviser who will help you meet your objectives.
Why do trustees terminate advisers and are there ways to improve outcomes without resorting to change?
Any one single factor can be a valid reason for change. Often, however, a decision is made to seek a new adviser when multiple factors occur at the same time and some metaphorical straw breaks the camel’s back.
Whilst there are some factors that might always trigger the appointment of a new adviser, e.g. some form of conflict of interest, other factors, if recognised and managed, can avoid the need for a potentially time-consuming process.
A decline in service levels
Typical issues that we observe are late, or error-strewn board papers and slow responses to queries.
The realities of work life mean that even the best team will miss the mark occasionally. A key trustee skill is nipping this in the bud. The way to do that is by setting clear targets, measuring achievement and giving clear feedback.
Like most things in life, having simple clear targets that are understood by all parties is important. Boards can use the wide experience of their governance support teams and professional trustees to set targets that are fair and achievable. It’s then a matter of creating a simple process that accurately captures whether targets are being met.
Capturing data regularly is important for a couple of reasons. First, adviser service reviews are often undertaken annually. Whilst that minimises effort, it has two problems. The first is that it can let small problems turn into bigger ones. Giving clear, timely feedback allows us to reinforce expectations and consequences and gives the adviser the incentive and opportunity to change. Second, when you do conduct your annual review, having more data points reduces the risks of ‘recency bias’, where the results closest to the review (good or bad) can skew your judgment.
Poor quality advice
Poor advice can be thought of in two dimensions. Advice that is ‘poor’ and advice that is given ‘poorly’. Beyond clear technical mistakes, e.g. incorrect numbers in a risk model, judging whether advice that, with hindsight, didn’t produce the optimal result is ‘poor’ is a tough problem. This is driven by the highly uncertain nature of the world – bad advice can create good outcomes and vice-versa.
What is easier to judge and trustees have some control over relates to how the advice is given. It’s an obvious and non-controversial point that some people are clearer communicators and engender more confidence than others. Whilst you can’t magically change the characteristics of your advisers, there are some things that can be done.
The most important issue for the trustee to communicate is what is and isn’t working for them. For example, advisers can often suffer from a ‘curse of knowledge problem’. This is where they have thought about an issue for so long that they can forget about the knowledge level of trustees and explain things in a way that makes sense to them, but not the audience. If people are using language that is too technical or there is a lack of clarity, this needs to be fed back clearly and consistently to help facilitate change.
A challenge for any board can often be asking, ‘Are we the problem – should we know more?’ Whatever the knowledge level of a board, it is the advisers’ responsibility to explain things in a way that works for the client. Many boards have professional trustees or governance support teams who experience a wide range of adviser behaviour and styles. They can be invaluable in communicating to an adviser what might not be working and how they have seen it done effectively with other boards.
If, after feedback, the key individuals still struggle to communicate effectively, then it may be time for a change of personnel.
A change in key personnel
Although boards hire firms (except of course for the Scheme Actuary which is an individual appointment), they take advice and build trust in individuals. If that person retires or leaves for another firm it has the potential to trigger a review, particularly if there are other issues in play, e.g. recent fee rises.
Here is a challenge that we observe. On any given decision, a board may (naturally) want to hear from the most experienced person in the room (after all, you are paying to have them there). But advisory work is almost always a team/firmwide endeavour, if you only hear from that person, you will not get a sense of the capabilities of the wider members of the team and the chance to build trust in them.
Whilst you won’t necessarily want a less experienced person leading on a challenging piece of advice, trying to build confidence in the wider team is important. If your advisers are relying on just one person, you may want to highlight this risk.
When an adviser leaves, multiple things can happen. Some firms will simply appoint a default replacement and you then need to go through the process of finding out whether you have ‘chemistry’ with them. Some firms might engage you in a discussion about your needs and in our opinion they should!
Understanding what your board wants and needs in an adviser is invaluable. This will help with negotiating a replacement or being clear with any new adviser about what you want from them. You can understand this by engaging the board with some simple questions such as, ‘Why did we like x – was it the way that they gave advice, e.g. making complex things simpler complex, giving a clear recommendation, their level of experience, etc.?
Being clear about your needs will give you the best chance of negotiating with the advisory firm about a suitable replacement. If they are not prepared to give you someone with, say, similar experience then this may likely trigger a search.
If the firm does suggest someone who appears suitable, it will also allow you to start any relationship positively, with clear expectations and allow you to measure the performance of the new team member.
An increase in fees
The cost of advisory work in every field only seems to go one way, up. Trustees are always, rightly, keen to ensure that they are getting ‘value for money’.
Any board who has thought about this will know how elusive a concept value can be. Many advisory offerings don’t allow an easy ‘apples-to-apples’ comparison. For example, a highly experienced client team in an investment consulting firm might cost 25% more than their peers. But if they are able to help the board make difficult strategic decisions more effectively the extra cost may pale into insignificance.
This is a complex area, but this is another area where the board can tap the experience of its professional trustees and governance support teams who have wide experience in this area.
The simple approach of comparing hourly rates often gives a skewed comparison as what takes one adviser an hour on a high charge rate may take another two hours with the result being a higher cost. Using benchmarking to compare your advisers’ costs for a peer group of schemes over a three-year cycle, stripping out any high-value project costs, will probably be a better indicator of relative value for money.
Conclusion
Trustee/adviser relationships are no different to other types of human relationship – there will often be bumps in the road.
Sometimes the nature of the problems are insoluble and a parting of the ways is the only solution. However, there are things that trustees can do such as setting clear targets and providing regular feedback that give the best chance for the relationship to flourish and to weather certain storms. This does require a little work, but the payback can be better ongoing advice over the short term and possibly avoiding an appointment process in the future.
Judith Codling - Director of Client Services, Zedra and Paul Richards – Founder, Better Decisions
