Client demands push consultants to upgrade tech

Investment consultants are beefing up their technology to meet client demand for more sophisticated digital money manager, portfolio and risk management evaluation tools.

Among the areas consultants are focusing their technology efforts on are more frequent and efficient ways for employees of corporate defined benefit plans to monitor and manage the funded status daily and using participant-level data from defined contribution plans to help create retirement income options.

Top-notch technology is essential for investment consultants to meet demand from every segment of their client base, industry sources said.

"Robust performance reporting about single managers or strategies is table stakes now. Plan sponsor investment staff and trustees need real-time data that provides an aggregate view from a risk management perspective. This isn't something that's going to go away," said Rachel H. Carroll, managing director of consulting and senior consultant for Russell Investments Americas' institutional business, Seattle.

"Digital systems are essential to meeting clients where they are," Ms. Carroll said, noting that one way for Russell to do that for corporate pension plan investment staff is to provide them with a daily report on the plan's funded status so investment teams can monitor and quickly make changes in response to market changes that could impact the funded status as part of risk management. Russell also will set up derisking triggers at a client's request to auto-rebalance the portfolio.

Russell also is tapping into the growing interest in retirement income options from defined contribution plan sponsors and is helping plans create these options through analysis of plan participant data from record keepers, Ms. Carroll said.

Russell clients also have digital access to the firm's money manager research portal, which contains data for 14,000 managers, allowing investors to review managers on their radar, Ms. Carroll said.

Russell Investments had $2.95 trillion in worldwide institutional assets under advisement as of June 30, up 18% from the prior year, according to Pensions & Investments data.

Mercer Investments LLC, New York, has followed in the digital footprints of Yelp Inc. and Netflix Inc. to create a crowdsourced money manager community — Mercer Insight Community — said Rich Nuzum, global president for investments and retirement.

Money managers can use the platform to share their research presentations, which are reviewed by users.

"If a manager gets a few reviews, they're off to the races," Mr. Nuzum said, admitting that "we stole the idea from Netflix and Yelp."

Hundreds of managers have taken advantage of the digital platform, which for the most part is used by in-house investment staff and trustees of large pension funds, often for manager due diligence, Mr. Nuzum said, "because there is a lot of reading."

Mercer also offers an online money manager research platform, Mercer Insight Research, to investors that's behind a paywall.

The firm is seeing new business, said Mr. Nuzum, noting that "it differentiates us in consultant searches."

Mercer had $17.35 trillion in worldwide institutional assets under advisement as of June 30, up 8.7% for the year, making it the largest consultant in Pensions & Investments' annual ranking.

Investment in technology is a heavy but required expense for investment consultants to keep pace with their peers, said Kevin P. Quirk, a Stamford, Conn.-based principal at Casey Quirk, a practice of Deloitte Consulting LLP.

Consulting firms' investment in technology for manager research, risk management systems, scenario analysis and portfolio construction for internal use "has become pretty routine, but there is a lot of focus on client engagement in delivering the same kinds of investment management tools to asset owners through the use of technology." Mr. Quirk said.

Mr. Quirk added that the push to provide more digital tools for asset owners and other investors is likely to continue over the next five to 10 years.

The addition of sophisticated technology is an expensive endeavor, said investment consultant executives.

"Smaller consultants that can't afford a large technology investment likely will be looking for partners or mergers. Their hustle just isn't enough," said Douglas W. Moseley, a partner at NEPC LLC, Boston.

"With regard to our ecosystem, clients want access to more and better tools and providing them is the only way to hold on to them," Mr. Moseley said.

The firm worked with outside vendors to build its data integration system to create the intersection of information from data feeds from custodians, record keepers, asset managers, actuaries and other service providers for NEPC's clients, Mr. Moseley said.

NEPC has a broad investment consulting client base including public and corporate defined benefit and defined contribution plans and other client segments that require data-heavy reporting and portfolio assistance tailored for their asset pools, Mr. Moseley said, adding that the 35 digital tools at NEPC's fingertips help in the creation of segment-specific information.

NEPC's technology expenditure is exceeding that of other areas of the firm and has been rising over the past seven years, Mr. Moseley said. He declined to provide the firm's technology costs.

NEPC has hired employees in new roles for the firm as it increased its technology offerings, including employees who work as a go-between, delivering asset owners' technology requirements to programmers.

Even as costs rise, Steven F. Charlton, partner and director of consulting, noted "the more technology, the fewer people we need," in the same interview with Mr. Moseley.

NEPC had $1.37 trillion in worldwide institutional assets under advisement as of June 30, an increase of 22.6% compared to the prior year.

To Mr. Moseley's point, sources agreed that better use of technology will be the key for consultants' success going forward.

"Everything in the consulting industry is very competitive now, and technology is essential to build scale that will help to control pricing pressure," said Kemp D. Ross, Chicago-based global head of delegated investment solutions at Willis Towers Watson PLC.

"The use of technology is better for clients who want more data delivered to their fingertips in the most efficient way possible, especially corporate defined benefit plan investment teams regarding their funded status and large in-house investment teams that want to drill down into the data to test their managers' portfolios," Mr. Ross said.

Technology has been Willis Towers Watson's biggest cost over the past few years, specifically to support the firm's outsourced CIO practice in the U.S. and Europe, which is seeing strong investment demand, Mr. Ross said. He declined to provide the firm's technology outlay.

Willis Towers Watson has provided OCIO investors with reporting tools so they can track their portfolios, and the firm is in the process of migrating the same technology to consulting clients so they can better monitor their portfolios.

Willis Towers Watson had $3.6 trillion in worldwide institutional assets under administration as of June 30, up 38.5% over the year, placing the firm in the third spot in P&I's ranking.

The firm had $183 billion in worldwide institutional assets managed in OCIO strategies with full or partial discretion as of June 30.