Publishing its provisional decision report, part of its Investment Consultants Market Investigation today, the CMA says that it had found evidence of an adverse effect on competition (AEC) in the field of fiduciary management.
It also recommends investment consultants and fiduciary managers be required to include a clear mandatory warning that alerts trustees to the nature of the information being provided by the firm.
It has also recommended that TPR develop enhanced guidance for trustees on conducting competitive tender processes.
The CMA also proposes a standardised methodology and template for reporting past performance of fiduciary management services to prospective clients and that the Government extend the FCA’s regulatory perimeter to include the main activities of investment consultancy and fiduciary management providers.
But the CMA has stopped short of requiring organisations that offer both investment consultancy and fiduciary management to separate their businesses completely.
Pension trustees selecting their first fiduciary manager must run a competitive tender. Trustees who have already appointed a fiduciary manager without doing this must also put the role out to tender within five years. This would increase competition in the market and reduce the competitive advantage held by the incumbent investment consultant when it comes to getting the new business.
Fiduciary management firms must provide clearer information on fees and how they have performed for other clients, so that pension trustees have the information they need to make meaningful comparisons between different providers.
The CMA is also making recommendations for new guidance from the Pensions Regulator, which would provide trustees with more advice on how to choose and scrutinise providers. It is also proposing that the government broadens the Financial Conduct Authority’s (FCA) regulatory scope, to ensure greater oversight of the industry.
CMA Investment Consultants Market Investigation chair John Wotton says: “We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members. They may lack the information they need to compare competing offers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.
“This is an extremely important sector that influences how well millions of people’s pension savings are invested, and it’s therefore vital we take steps to make sure that competition is working properly. That’s why we’re proposing a number of important reforms to the sector, including requiring pension trustees to run a competitive tender when they choose a fiduciary manager and ensuring that trustees have much better information about fees and investment performance.”
Willis Towers Watson head of investment, EMEA Ed Francis says: “The requirement for a competitive tender on appointment of a fiduciary manager is in principle a sensible proposal – the large majority of our fiduciary management clients have appointed us following a competitive tendering process. However, we will urge the CMA to consider the proportionality and cost to schemes of a mandatory tendering requirement, particularly for smaller pension schemes, and stand ready to work with the Pensions Regulator in developing support for such schemes.
“We fully support, and have long advocated, measures to provide pension schemes with clear, consistent and transparent information on performance and fees and the CMA’s proposals in this area will be a significant step forward for the industry. The requirement for investment consultancy clients to clearly articulate their investment objectives is also a welcome development.
“Finally, we are pleased that the CMA has acknowledged that structural reforms of the investment consultancy market would be detrimental to customers.”
PLSA policy lead: investment & defined benefit Caroline Escott says:“We are pleased the CMA has focused on improving information around fees and investment performance, and we also support moves to improve the tendering process through greater guidance and ensuring schemes have to run an initial tender for fiduciary management services. One of our members’ main concerns about this market is the potential conflict of interest when investment consultant firms steer their pension schemes clients to their in-house fiduciary management services. Given the CMA’s findings in this area, we therefore welcome broadening the Financial Conduct Authority’s oversight of investment consultants.”
Barnett Waddingham head of fiduciary management oversightDavid Clare says: “The decision of whether a pension scheme should consider fiduciary management is solely a question of investment governance. Whilst fiduciary management can be beneficial to a trustee board, an independent engaged advisory approach can lead to a better outcome free of the concerns over conflicts of interest.
“We have always believed that the role of independent oversight is essential when hiring a fiduciary manager, setting its mandate and monitoring its performance and our experience to date has shown the added value that has been achieved We therefore welcome the CMA’s support of increased independent oversight.”
Cardano co-head of clientsRichard Dowell says:”Following a detailed and forensic enquiry, the pragmatic proposals put forward will bring real and much-needed change.
“The only stone that remains unturned, perhaps, is what the data gathered by the CMA can tell us about the impact of adopting fiduciary management versus advisory. Given the focus on transparency, publication of the aggregate performance data collected through the course of this enquiry would demonstrate whether, as a whole, outcomes have been better for those that chose FM even though the CMA is concerned how the market has developed. That said, this provisional decision delivers a solid 9/10.”
Redington head of DB Dan Mikulsis says: “We were pleased to see the focus on separating marketing material from investment advice, and are keen to see that enacted well. The usefulness of this will depend on the way it is implemented.
“The CMA could have gone further on consultant benchmarking – making some sort of system for ranking consultants’ performance.”