Publishing its first set of findings since it was appointed by the FCA to investigate the investment consultancy sector, the market watchdog says fiduciary management fees are less clear than advisory fees, and fee transparency in general is below what is needed for the market to be competitive.
The CMA says some fiduciary clients are not receiving regular invoices from their managers, and when invoices are received they do not always state exactly what services are included.
Releasing the first of eight working papers on Friday, covering fees and quality, the CMA adds that information regarding expected changes to fees, resulting from a change to the investment strategy or underlying funds, is more limited for fiduciary management than for advisory clients.
It has published a raft of potential remedies, including a requirement for investment consultants to deliver standardised information for prospective clients in tenders, better fee information, standardised performance metrics and stronger service quality metrics.
Trustees should be empowered to request better information by the development of template documents including standardised fee or performance schedules and guidance on how to assess responses, says the CMA, which acknowledged that some work in this area is already under way as a result of Mifid II and the FCA’s Institutional Disclosure Working Group. It added that it was too early to say whether these initiatives will improve the functioning of the market.
For current clients, regular information on third party fees, such as those of asset managers, is identified as limited in both advisory and fiduciary management. But DC schemes receive regular information on third party fees due to regulatory requirements, including their annual Value for Members assessments.
But regular performance reporting is generally clearer for fiduciary managers than for advisory, with fiduciary managers giving a greater focus on the long-term strategic performance of the scheme.
Fiduciary managers are also performing better in terms of the information on fees they are giving in tenders for prospective clients, with the information in advisory tenders described by the CMA as ‘poor’. Many tenders ask only generic questions and firms often respond with differing fee structures and non-comparable estimates. Fiduciary managers’ tenders gave significantly better information where a third party evaluator (TPE) is used.
The CMA says “it is important for trustees to have clear and accurate information on the fees that they pay throughout the value chain, and from the documents we have reviewed, fee transparency, particularly third party fees, is in general below the standards which ought to be achieved through effective competition.
“There are important ongoing developments in this area, particularly Mifid II and related work at the FCA, such as the Institutional Disclosure Working Group. However it is too early for us to fully assess the effectiveness of these developments.
“We have received some mixed responses from parties regarding the impact of Mifid II on fee reporting for advisory clients. We welcome further submissions on this point, and the impact of Mifid II more generally.”
