This year marks consultant William M Mercer's 25th year in Hong Kong, and the firm is also now opening a branch for human resources work in Guangzhou, its third on the mainland after Beijing and Shanghai. To celebrate the events, Peter Coster, president of Mercer Consulting Group in New York and a member of the board of parent holding company MMC (Marsh & McLennan Company), is passing through, between stops in Sydney, Melbourne and Tokyo. He made a little extra time for FinanceAsia, along with Hong Kong-based Steve Butler, managing director, and Jim Johnston, director of investment consulting.
FinanceAsia: How do you evaluate Mercer's market position in Asia, particularly its investment consulting practice?
Peter Coster: First let me step back. We have essentially three operations: management consulting, human resources consulting under the William M Mercer name and organizational design - that last one comes under Delta, a company we acquired in the United States. They all fit together nicely, but in Asia we lack the Mercer Delta piece. That is the patina of the group, and our strategy always has been to globalise. Since the 1970s we have gone on a spree of acquisitions. This started in the English-speaking world, where companies constantly have demand for retirement, actuarial and investment consulting. Then we entered Western Europe, particularly through markets such as Holland.
Coster: In the past we have not put as much muscle behind Asia and Latin America as we do now. In other regions, markets had well-established local businesses. We were able to acquire locally. But there is less available to buy in Asia. It is very hard to build a leading consulting role just from growing organically. So it has taken us longer.
Steve Butler: There has only been an appetite for consultants in Asia for a short time. In Hong Kong there has only been demand from the retirement scheme market for about 10 years.
Coster: No other consulting firm has quite our model, so I really don't know how to compare market share. The key to growth generally is to have a strong global practice. You have to get an exchange of intellectual capital. We've spent a lot of money on that, in order to attract good people. In the old days the business used to be about having the best people. Now it's about having the best people and a system for knowledge sharing. It's a bit like planting trees: after you plant them, you need to keep watering and watching them.
In 1975, Mercer was formed out of the employee benefits division of Marsh & McLennan [a huge insurance broker] in the US, with our own brand name and organization. Then, all we had was the employee benefits business in North America and a name, Mercer, from a Canadian acquisition that was unknown outside of Canada. If you had done a league table then, Mercer would be way down. Today we are the only consulting firm in a leading position to originate from an insurance broker. We have a remarkably strong position in most key geographies.
Defined contribution is being introduced in Asia - in Hong Kong with the Mandatory Provident Fund, in Singapore with its Supplementary Retirement Scheme and in Japan with its new DC law. Does this limit the influence of consultants?
Coster: Developed countries with mature social security programmes - that's not exactly a warm, friendly environment if you are an actuary. There are more complexities in defined benefit than in defined contribution. But there are broader strategic issues around retirement, namely how to attract the right people and retain them, and how to build the right workplace environment.
Butler: DC has cooled off actuarial work, but this is rather new. We're now going through the longest sustained market downturn - there's been no bad news until now. Plan sponsors are looking again at consultants. Employers thought DC got them off the hook, but it's not the case.
Jim Johnston: A lot of sponsors in the US offered growth-oriented investment funds at the expense of value investing. They need a more diverse menu of investment options. This reinforces the long-term nature of retirement savings.
Any plans to launch fund of funds, as some competitors such as Frank Russell have done?
Coster: We have spent time going down this route in Australia. But in Asia and the rest of the world, the margins on the business don't make it attractive. That's it, really.
Butler: The US market is extremely competitive. Asia is immature and the volumes are small. We continue to think about it, though; local fund managers under global organizations think about this kind of solution.
Coster: The relative amount of money made by the investment consultant does not recognize the value we add.
What are you learning on this trip?
Coster: I'm hearing some very bullish things about China, from both the human resources and the management consulting sides. And Mercer Delta does a lot of work in governance issues, such as board structures. There is a huge demand for this in Australia now that some large organizations have gone belly up because they were not well governed.
Margins in your US business are tight.
Coster: Historically margins have been weaker in the US than elsewhere. I can't see any structural reason why. We need to manage it more aggressively. We offer a high-value added service so ought to make a good margin.
What other pressures do you face?
Butler: Twenty years ago in Australia, investment consulting was just a string on the bow of management consulting. Now it is very technical and we are competing with fund managers for talent. We can't compete with them on salary. We have to make it appealing to work here. You have to love it a bit.
Coster: What is the glue to keep people around? It's not just having the best people but the best knowledge-sharing infrastructure. Our global presence lets us bring more to the party than a series of franchise operations. Some accounting firms that call themselves global are really no more than a series of local partnerships.