Have Mercer

After 28 years with Watson Wyatt Alan Whalley crossed over to head up their biggest rival. Mercer\'s UK chief executive tells John Greenwood about pensions, personalities and the pressures of maintaining Mercer\'s market share

For somebody running a company that can name two thirds of the FTSE100 as its clients, Mercer’s chief executive Alan Whalley is a refreshingly down to earth character.

Born in a small mining town in the West Riding of Yorkshire, Whalley’s rise to the top of the UK arm of the world’s biggest employee benefits consultancy can only be described as exceptional. The first member of his family to go to university, let alone Oxford, Whalley puts his success down to old-fashioned virtues like hard work and the ability to seize opportunities when they come your way.

“I put it down to true northern grit. The biggest lesson I’ve learned from my parents is whatever you do, do your best,” says Whalley, who majored in maths because it was something he found came to him easily. A consultant throughout his career, on graduation Whalley picked the profession over accountancy as a way to apply his strength with figures while working in a people profession.

Now aged 52, Whalley has only ever had two employers, the first of which was Watson Wyatt, his current firm’s greatest rival, which he joined two years ago. So what was it like doing the EBC equivalent of crossing the floor of the House of Commons, and what brought matters to a head?
“Once the UK Watson and US Wyatt businesses were together I found I was disagreeing with the CEO of the combined business John Haley. He disliked the fact that I disagreed with him on occasions and eventually it got to the point where it was clear we weren’t going to be able to work together,” says Whalley.

“I often disagreed about individuals and what they were capable of doing. Haley wanted to put people in roles which I did not think made sense. Unfortunately he was one of these people who didn’t like people disagreeing with him and I am a bit of a blunt Yorkshireman. But he was the CEO and I wasn’t, and that is fair enough.”

He still has many good things to say about Watson Wyatt, which is hardly surprising having spent the best part of three decades there, but says he is happier now he is settled at Mercer.

“I noticed more similarities in culture than differences when I moved over to Mercer. The values of the organisation are similar,” he says. “Both firms are very professional and both have a desire to do the right thing, act with integrity and give high quality services but if anything Mercer is a friendly organisation, people are genuinely friendly.”

But it doesn’t take long for Whalley’s diplomacy with regard to comparing the two competitors to melt away. “There are two things which I always admired about Mercer, which if I had been the CEO of Watson Wyatt I would have done differently. One is scale and the other is implementing solutions rather than just advising on them,” says Whalley.

“Mercer has a much broader based business, and one with more geographical pull which makes it a better place for servicing multinationals. That was something that Watson Wyatt was always trying to play catch up on.

“The other area is where clients are increasingly looking not just for advice but solutions that are implementable. It’s not just a question of giving the advice and then walking away. They want solutions that we can go and implement for them,” he says.

One of Mercer’s newer initiatives in this area is its Retirement Solutions product, a packaged pensions service that was originally designed for small to medium sized companies but which a lot of larger companies have also taken an interest in, in the interest of managing their pension costs.

“Some clients are saying ‘you are the experts, we would like you to hire and fire the managers, so please take those decisions away from us’,” says Whalley. “Other firms do this, but Mercer has registered itself as an investment manager so that the contract with the fund manager is with the consultant and not with the employer client,” he adds.

Whalley says the closest competitor to what it is doing in this space is Frank Russell, although this is also an area that Hewitt and Towry Law are looking at.

Whalley was brought in charged with growing the revenue and reputation of Mercer and while its internal rules do not permit it to give details of the exact levels of business that it has generated from its UK arm, in the two years to December 2007 the firm has increased its revenue by 18 per cent. He sees the number of employees in occupational schemes under his charge as being broadly stable over the two years he has been in charge.

That is no mean feat for a consultancy that has in the past specialised in defined benefit or trust-based defined pensions over a period that has seen that part of the market come under serious pressure. Whalley says the firm is agnostic about which sort of pension its client chooses, and accepts that the firm’s consultancy model is operating a pensions environment that has competitors in every corner.

“Mercer has a whole myriad of competitors, from firms that are like it such as Watson Wyatt, Towers Perrin, Hewitt and Aon to brokers of smaller clients who are moving up in the size of company they are servicing, such as Alexander Forbes and Hargreaves Lansdown. Hargreaves for example have found a number of places where they have been able to play in the FTSE 100,” he says.

“They have got the expertise and their experience is transferable from small clients up to large ones. We certainly see competition from them. We also see it from some of the specialist risk areas we operate in such as the bulk buyout market and also from investment providers like JP Morgan and Fidelity,” says Whalley.

One area where Mercer is getting into a strand of business previously the preserve of IFAs is in the transferring of benefits out of final salary schemes. Whalley says FTSE100 companies want to adopt the practice, to manage down their liabilities, and signals that there are some well-known names on the verge of putting their toes into this sort of business. “It will not be long before FTSE 100 companies are doing this,” he adds.

“Some people have said transfers of this sort are unethical and we shouldn’t be doing this, that this is the next personal pensions misselling scandal,” says Whalley. “But who’s to say that we can second guess the personal circumstances of each individual, because for some people, single people or people with a reduced expectation of life, for example, or even people who simply need the money to buy a house, it can have an increased utility.”

After conducting a review as to whether or not it should be playing in the transfer game, Mercer three months ago decided it should.

“Initially we were one of the firms who said this is not something that we really want to get involved in, but the practice has now evolved to a stage where, while the regulator has stopped short of saying it is acceptable, it is prepared to accept that this is a reasonable thing to do, provided that people know all of the facts, and have the opportunity to get advice,” he says.

Though agnostic with regard to the trust versus contract debate, Whalley shares many of the wider industry’s concerns over the governance of GPPs and group stakeholders. And across both areas in the defined contribution space he has real worries over at-retirement decision-making. He frankly admits that some of his own clients’ trustees are putting themselves at serious risk of regulatory or legal action for failing to fully explore the most suitable options for their particular circumstances.

“For people who have not got an annuity that takes account of their personal circumstances there is definitely a risk of misselling by trustees. Some of our clients are not doing enough on annuities and could be at risk,” he says.

But when it comes to pensions reform, Whalley is not one of the growing band of people who thinks personal accounts will not happen. But he does think employers are yet to develop a set opinion of what 2012, or whenever the project is introduced, will mean to them. “Some of our clients will level down, but I expect the vast majority of them to continue with what they have. They may do some tweaking in terms of the benefit design in light of the fact that personal accounts is also available but I would not expect many of our clients to be walking away from what they already do.”

“The real issue is personal accounts will not work if journalists believe that means testing will undermine the delivery of benefits for the lowest paid. If in 2012 you are getting articles in the Daily Mail or the Mirror or Sun saying to people you are wasting your money, the whole policy will fail,” he says. “So they have got to fix this means testing issue before bringing it in.”

He is less positive about the recent amendment to the Pension Bill to outlaw encouraging staff to take alternatives to pension, saying that for what he describes as Generation Y, younger staff who want immediate gratification, benefits that will not be accessed for several decades offer little attraction in terms of engagement with employers.

“People coming into the work force now are not concerned about pensions. They are bothered by how to manage student debt and how to even contemplate starting to get onto the property ladder. Those issues aren’t going to go away and employers have begun to realise that there is much higher appreciation for a matching contribution into a flexible savings plan. If you get people into the habit of saving you can get people into the habit of pension saving later in life,” he says. “Now we have a government proposal to effectively ban employers from encouraging people to opt out of a pension plan into an alternative. I can understand why they are doing it but there will be a very strong unintended consequence of what they are currently proposing.”

But beyond responding to consultations and legislation that the Government or regulators initiate, Whalley sees little mileage in the intermediary sector steaming into Whitehall with a series of demands for shaping the regulatory, legal and tax framework in which we operate. “Governments don’t listen to consultants – they only listen to corporate bodies. Politicians don’t believe consultants because they think they are trying to enhance their own businesses,” says Whalley.

But this view is also an attitude that sums up the lot of the consultant. “It doesn’t really matter to consultants how the rules are changed. As long as there is change, consultants have something to do.” n

All about alan whalley

“I love the diversity of the architecture [in London], which is one reason why I try to walk nearly everywhere I go.”

Education

Oxford University, BA Mathematics

1977-2006 Watson Wyatt Opened new offices in Manchester in 1985 and Leeds in 1990.

Held position of head of UK benefits from 1995 to 1999 and managing partner for Europe from 1999 to 2004, before transferring to Washington DC as US regional manager.2006-present Mercer – Worldwide.

Partner and zone leader and chief executive of Mercer in the UK

Fellow of the Institute of Actuaries and a fellow of the Pensions Management Institute

Personal stuff

Whalley has two grown-up daughters and lives in an apartment overlooking Vauxhall Bridge, a view he shares with neighbour and Personal Accounts Delivery Authority chief executive Tim Jones.

Interests

  • Enjoys living in London. “I enjoy having the opportunity to go to the theatre whenever I want. I also love the diversity of the architecture, which is one reason why I try to walk nearly everywhere I go.”
  • Loves travel, particularly Africa. “My favourite place on the continent has to be Botswana. It is out of this world. It is so unspoiled and as a country they have got lot of things right, a stable government, good natural resources, and an enlightened approach to diversity.”
  • Driving a Mini Cooper S. “When I first moved to London my mews house was one inch too short for my Jaguar XKR convertible, so it had to go, but I want to get another convertible. The Mini is an oversized go-kart – a lot of fun.”