Consultants Dominate Plan Picks for Performance Services

February 24, 2003 ( - While plan sponsors continue to demonstrate a willingness to add performance measurement services to their custodian bank relationship, consultants still seem to be drawing most portfolio evaluation assignments.

According to the  PLANSPONSOR/Bank of New York Research Study on Master Trust & Custody , third-party consultants were the most popular choice to provide extra portfolio evaluation services, including a variety of services that many custodians provide.   That finding seemed somewhat at odds with the fact that performance measurement was most frequently cited as the service added to the custodian relationship by survey respondents (see  DB Plans Wringing More from Master Trust Providers ).  

Respondents relied on third-party consultants for performance analytics (47.9%), portfolio characteristics (55%), performance attribution (55%), universe comparisons (56.2%), compliance monitoring (38.5%), and value at risk (39.1%).  

Custodians were, however, generally the second most likely source for these services, both for public and corporate plan respondents.   A notable exception was value at risk, which was nearly twice as likely to be performed in-house as to be provided by a custodian (13% versus 7.8%).   Of course, nearly 40% of survey respondents do not provide value-at-risk reporting at present.

Other Services

Roughly a third (34.8%) of public plan sponsors require accounting for complex securities from their custodian, compared with roughly one-in-four corporate plans.   Those numbers were roughly double the requirement of five years ago, according to the survey.   Not surprisingly, complex accounting was most often provided for derivatives and alternative investments.

The vast majority (83.3%) of public plan respondents handle benefit payments in-house, in sharp contrast to just 16.3% of corporate plans that do so.   More than half (58.1%) of corporate plan respondents use their custodian for these services, opting for another third-party in 25% of the cases.