The acquisition was driven, in part, byMercer's acquaintance with the firms' defined contributionconsulting talent, said Rich Nuzum, president of Mercer's globalwealth business, in an interview. (Photo: Shutterstock)

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Mercer's announced acquisition of Canadian-based PavilionFinancial Corporation and St. Louis-based Summit Strategies Groupwill augment the firm's alternative asset, not-for-profit, andwealth management consulting capabilities.

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Pavilion's $685 billion in assets under management made it the13th largest investment consultancy in 2017. Summit's AUM was $160billion at the end of 2017. In a release, Mercer cited the strengthof Pavilion's alternative asset consulting capabilities and itsCanadian private wealth management business, and Summit's reach inthe not-for-profit space.

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The acquisition move was driven, in part, by Mercer'sacquaintance with the firms' defined contribution consultingtalent, said Rich Nuzum, president of Mercer's global wealthbusiness, in an interview.

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“Sponsors tend to buy the lead consultant,” said Nuzum. “BothPavilion and Summit have very strong defined contributioninvestment consultants. We are bringing on great lead consultantcapabilities, and a strong client base.”

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Pavilion consults on $85 billion in defined contribution assets,according to its website. Summit consults on plans ranging in sizefrom under $100 million to $5 billion across the DC spectrum, witha focus on 403(b) hospital plans.

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Nuzum describes Mercer as being “modestly acquisitive” over thepast decade.

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“We have a high quality bar for acquisitions, and we feel likewe know the talent well at both firms. There are a lot of firmsavailable for acquisition that wouldn't meet our qualitythreshold,” he said.

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The impetus behind the acquisitions was strategic and financial,said Nuzum. Beyond defined contribution plans, Pavilion has aspecialty advising insurance company portfolios. Mercer intends tofold the Pavilion brand into its not-for-profit and insuranceclient consultancies, according to the release.

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Both Pavilion and Summit offer outsourced chief investmentofficer (OCIO) services astride traditional consultingservices.

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Nuzum said the acquisitions will provide “concrete benefits” forMercer's existing defined contribution clients.

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“Defined contribution sponsors care about fees,” he said. “Thiswill help us drive down fees for our clients.”

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Investment managers traditionally provide aggregated feetreatment for OCIO accounts. More recently, some fund companies areoffering aggregated fee treatment for advice-only accounts, saidNuzum.

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“If a consultant has 10 clients that use a given strategy, somemanagers will aggregate assets across those 10 clients' accountsand charge all of those clients a lower fee, based on theaggregated total, as opposed to charging them each the higher feethat would apply if their smaller accounts were each considered andpriced separately,” explained Nuzum.

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“More managers are electing to mirror the scale economiesindustry commonly offers OCIOs in offerings to non-discretionaryinvestment consultants. For clients that use managers that offerthis type of aggregated fee treatment, there is clear benefit toworking with a consulting firm that has larger assets deployedacross its clients with that manager,” he added.

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The acquisitions will also advance Mercer's ability to meetsponsors' and industry's evolving imperative on financialwellness.

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“It's not a one-size-fits-all world anymore,” said Nuzum. “Moresponsors have to customize savings arrangements. The acquisitionswill better equip us to capture innovation in financial wellness,and push industry to innovate.”

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The costs of the acquisitions were not disclosed in Mercer'srelease. Each is subject to shareholder and regulatory approvals,and are expected to close in the fourth quarter.

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The lower corporate tax rate resulting from the Tax Cuts andJobs Act did not have a direct consequence on Mercer's decision,said Nuzum. But he did note that some of the firm's competitionhave re-domiciled overseas in recent years to take advantage oflower tax rates. The lower rate in the U.S. has helped level theplaying field for New York-based Mercer, he added.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.