The FCA has decided to refer the investment consultancy and fiduciary management sector to the Competition and Markets Authority (CMA), and has rejected undertakings in lieu made by Aon, Mercer and Willis Towers Watson.
The CMA will now begin a market investigation into the supply and acquisition of investment consultancy services and fiduciary management services under terms of reference set out in an FCA paper published today.
If the CMA finds an adverse effect on competition, it has power to take action to ‘remedy, mitigate or prevent’ these adverse effect along with any detrimental effects on customers. Its powers include the ability to divest or vertically separate the market.
The FCA says the concerns it identified in the investment consultancy services sector are widespread and persistent and require an in-depth review.
The FCA started its asset management market study in November 2015, investigating conflicts of interest in investment consultants providing both advice and asset management services. The market study also scrutinised transparency of charges across the wider asset management industry.
In November 2016 the FCA published an interim report identifying a weak demand side, inability to assess the quality of advice, stable market shares among investment consultants, high barriers of entry and vertically integrated models.
Possible remedies proposed by the FCA include:
– Requiring consultants to provide more standardised performance information to their clients and introduce a template for reporting this information. This might enhance transparency and assist investors’ decision-making
– Requiring consultants to make their performance and fee information publically available (eg on their websites or other publically accessible databases) so that investors can compare across the market
– Prohibiting certain fee structures that may misalign incentives for consultants when they are advising clients
– Improving redress mechanisms when consultants underperform or an investor is not satisfied with the advice they have received
– Requiring trustees to periodically review and re-tender contracts with their investment consultants
– Making recommendations to trustees and employers on best practices when managing their investments or managing their schemes