Asset Mix | Published in August 2010

Staying on Track

Six things that can help transition management run smoothly.

By Judy Ward | August 2010
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Illustration by JooHee Yoon

“At the end of the day, when it comes down to implementing a transition strategy, execution is everything,” says Dan Connelly, Vice President and Head of Transition Management at Fidelity Capital Markets.

“The fundamentals of execution are not a commodity, especially when large portfolios are traded in a short amount of time,” Connelly says. Execution technology and methodology continue to advance rapidly, he says, and the value proposition from one provider to another can be significant. Execution platforms also vary widely and significantly affect performance, he adds.

In these complex deals, plan sponsors can do a lot to help ensure that a transition process runs smoothly. Looking at transition management from a fiduciary perspective, “The process is almost more important than the final results,” says Steven Glass, President and CEO of Zeno Consulting Group, LLC, in Bethesda, Maryland.

Here are six ways for sponsors to help:

1. Focus on your number-one priority: “One of the questions plan sponsors need to ask themselves is: ‘How will we define success?’” Glass says. “For some clients, the goal is less about minimizing costs and more about getting out ASAP. For others, their big issue is: ‘I want the transition to go smoothly.’ For others it is: ‘I do not care how long it takes, I care about minimizing costs.’ It is very important for the plan sponsor not to confuse the primary and secondary goals, and to make that primary goal clear to the transition manager.”

Most clients look at transition management as a cost exercise, says Brandi Wust, New York-based Senior Investment Consultant at Towers Watson. “What most miss is that cost is one small factor in all the criteria to think about,” she says. “The truth is that operational risk is equally important. If you pick the cheapest provider and it screws up on a big operational issue, you have not bought any value.”

2. Have a fiduciary action plan: Sponsors often feel confused about what fiduciary duty they have if they hire a transition manager, Glass says. “Some see that as a panacea, as a way to delegate all the fiduciary risk, but it does not do that.” A transition manager recommends possible strategies a client can utilize, but a sponsor ultimately decides on the implemen­tation method used, explains Fred Fogg, Director at Credit Suisse Transition Management. “From our perspective­, the transition manager’s role is to assist the plan sponsor in managing risk,” he says. “The plan sponsor’s input is incorporated by the transition manager to set up a pretty thorough process and a checklist of roles and responsibilities. The plan sponsor is an integral part of the process.”

The fiduciary responsibility goes beyond initially selecting a transition manager, and Connelly says that sponsors should review their pre-approved transition manager lists at least annually to assess execution quality and methods. Also, Wust suggests checking in by e-mail with managers regularly during the year to find out about any new issues such as changes in staffing or business strategy.