The Competition and Markets Authority has demanded a range of reforms to improve competition in the investment consultant and fiduciary management sector.
This recommendations come as the CMA publishes its final report into the 15-month long market investigation into this sector.
The CMA concluded it had found competition problems with investment consultants, and – to a greater degree – the fiduciary management markets.
It says many pensions trustees do not have sufficient information on the fees of quality of these advice or fidicuiary management services to be able to judge if they’re getting good deal from their existing provider or if they could do better selwhere.
As a result this reduces the pensions trustees to compare services and could lead to a worse deal or poor value for money for scheme members.
The report suggests a range of reforms to remedy this situation.
Pension trustees who wish to delegate investments decisions to a fiduciary manager must now run a competitive tends with at least three firms.
Those who have already appointed a fiduciary manager will have to put this service out to tender within five years.
In addition fiduciary management firms must provide clients with clear information on fees and use a standard approach to show how they have performed for other clients.
The CMA is also recommending that The Pensions Regulator produces new guidance to help trustees with these services. It is also recommending that the UK Government broadens the regulatory scope of both the FCA and TPR to ensure greater oversight of this sector in future.
The CMA chair of this investigation, John Wotton says: “This is an extremely important sector that influences how well millions of people’s pension savings are invested, yet we’ve found that many pension trustees may not be getting the best value for money for their members.
“Some lack the information they need to compare providers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.
“It’s therefore imperative we make these changes so that the sector works better for those it is meant to support – pension scheme members.”
The CMA will issue a draft of the Order(s), which will set out its requirements, for consultation in early 2019. Implementation of the new requirements is expected to begin later in the year.
Willis Towers Watson head of investment (EMEA) Ed Francis points out that this final report largely follows the preliminary findings and recommendations published in July.
He says: “While we were broadly supportive of the preliminary recommendations, we continued to engage with the CMA in recent months to ensure the details of the remedies are sensible and proportionate for clients.
“We are pleased that the final recommendations have addressed many of the concerns that we raised; for example, the tendering regime now being put forward no longer requires a fully open process, which will ensure it is not excessively onerous and costly to pension schemes.
“The revisions to the tender regime mean that it should now not act as a deterrent to the take up of fiduciary management for those schemes that will benefit from that approach.”
He adds: “The very thorough process that the CMA has undertaken should give customers significant comfort that the industry is committed to high levels of transparency and well aligned to serve them effectively both now and in the future.”
XPS Investment (part of XPS Pensions Group) welcomed this report which it says will encourage greater competition in these markets.
It points out that these reforms will particularly affect the fiduciary management sector, with five of the eight remedies proposed effecting this sector.
XPS head of investment Patrick McCoy says: “The remedies will have significant consequences for the fiduciary management market which has been dominated by the so-called ‘big three’. I
“n the investment consulting industry, the CMA found that ‘below average’ quality firms have substantially higher market shares. So increased competition in both markets will provide better outcomes for pension funds.”
