March 2008 35www.the-actuary.org.ukMatching an actuarial firm to a board of trustees is like finding a good pair of walking shoes. A comfortable fit for one scheme could be totally wrong for another. The process takes time and it8217s not cheap. So if the trustees are serious about a change, who do they go to for help? Until now, their closest adviser has probably been the scheme actuary (and their firm). There8217s probably been a reliance on the firm for more than just straightforward actuarial advice 8211 but this is one occasion where they can8217t help. So where do trustees get advice or help? Many actuarial firms have consulting arms that can assist in a re-tender exercise. It has to be said that they also often shortlist their own actuarial practices in the exercise. While this can be a perfectly reasonable step, the question of objectivity has to be raised, so that the decision can be justified. Outside helpDo trustees need outside help at all? Whether trustees manage the process themselves or in association with an external consultant will probably depend on the internal resources available and the size of the scheme. Large schemes may be able to set up a project team to do most of the detailed work and only use external help if it can add value. Mid-sized and smaller schemes may not be able to free up sufficient resource and could be looking for the process to be run externally. Whichever option, the essential ingredients of a tender process should be the same (see box, right). Actuarial expertise is a key criterion, of course, but during the course of the tender it is also essential to investigate the firms8217 IT capability. Actuarial calculations are now almost wholly automated. Even data testing is now checked via computer routines. Greater automation and systems integration means that trustees pay for skill, not paperwork, and reduces the risk of human error. Firms should be able to pick up data, transfer it to the valuation routine and produce a first draft without any re-keying. Occasionally a trustee board will go through the whole re-tender process, when in reality they want to test the market. Here the trustees8217 aim is to ensure the balance between the cost and service received is up to market standard 8211 a straightforward benchmarking exercise. Generally, they have no big issues with their existing actuarial supplier, but want to confirm they8217re fulfilling their fiduciary responsibilities. Sometimes trustees simply want their existing supplier to pull their socks up and provide a more effective service. There8217s a practical and psychological difference between putting the actuarial brief out to tender and conducting a market-test exercise. A re-tender is an in-depth process solely designed to facilitate change. When actuarial firms decide whether to respond to a brief, they will be interested in whether it is a serious re-tender. For a large scheme, the time, effort and cost involved in tendering can be substantial 8211 for both the scheme and the firm. It8217s so important that trustees spend time at the outset to agree on their motivations and plan accordingly. This will ensure that effort and resources are not wasted. Every scheme is different in one way or another, but the process for ongoing relationship management and benchmarking is fairly similar 8211 both help to keep trustees in control. The tender process kicks in when trustees decide change is unavoidable and is designed to produce the optimum match between the actuarial firm, trustee board and scheme. 187 There8217s a practical and psychological difference between putting the actuarial brief out to tender and conducting a market-test exercise 171n Statutory reporting requirements and timescales, including whistle-blowing proceduren Liability relating to trustees and the firmn Service levels and penalties for non-delivery. Protocol for ad hoc services. Policies for
review of actuarial factorsn Appointment and contract duration, including variation and notice periodsn Fee

basis

8212

time

and

charged

rate

applicable

to

scheme

actuary

and

the

team

that

will
produce the majority of work, and/or core fee for fixed-fee agreements. Plus
payment terms and how 8216ordinary8217 additional work is chargedn Work review process 8212 peer and/or subordinaten Complaints/dispute proceduren Cover arrangements 8212 what happens if the scheme actuary is unavailable, on holiday
or leaves the firm?Points to look for in a service agreement1

Determine

motivations,
requirements

and

expectations.
List

essential

and

8216nice-to-have8217
competencies.

Choose

8216long8217

list

of
approximately

eight

firms

that
roughly

match

the

scheme8217s
characteristics

and

requirements2
Draft tender document to reflect and
test the required competencies and
expectations and assess for cultural and
strategic fit3
Evaluate and score completed
tenders, shortlist three or four firms that
are a good match. Research proposed
scheme actuary4

Visit

shortlisted

firms

to

meet
proposed

scheme

actuary

and

test
tender

responses,

organisational

and
IT

capabilities,

and

people

issues.
Compare

results5
Present findings to trustee board6
Make a decision 8211 the firms8217 costs and
capabilities should all now be similar;
softer factors like personal fit between
the scheme actuary and the board will
inform final choice7
Transfer and implementation.The tender processClient servicePensions034+035_Actuary_Gubler_0308.indd35 3519/2/08 10:59:06
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