Pension consultants outside the big three say they are looking forward to working with the CMA to tackle potential conflicts of interest in the investment consulting sector, following the FCA’s referral to the competition authority today.
Pension PlayPen director Henry Tapper says he will be presenting the CMA with a ‘dossier of instances’ of anti-competitive behaviour by the big three consultancies, and has warned of continued ‘groupthink’ if the sector is not made easier for smaller players to access.
Xafinity says it wants to see an end to the domination of the market by the big three consultancies – Aon Hewitt, Mercer and Willis Towers Watson – whose undertakings in lieu of a CMA referral were rejected by the FCA this morning.
The PLSA says some of its trustee members have expressed concerns over misaligned interests in the investment consulting sector.
Tapper says: “We are looking forward to bringing the CMA a dossier of instances where the big three have stymied competition, restricting the options available to trustees. I am amazed by the perseverance of the FCA over the last two years to stand up and not be swayed by some very powerful vested interests.
“This decision to refer to the CMA is good for competition and innovation. It will improve the diversity of thinking in the market. The groupthink currently persisting amongst the big three around certain ideas worries me, because if they don’t generate the ideas, they do not want to know about them. LCP’s DCisive model, for example, which offered a derisking structure for DC defaults, and First Actuarial’s FAB Index approach to DB liabilities open up thinking on serious issues – both offer new perspectives. But the big three don’t want to embrace innovative thinking. If they haven’t come up with it, it won’t get a look in.
“That said, many of their DB clients are global entities who give mandates to consultants globally, so that is something the CMA will have to contend with.”
Xafinity head of pension investment, North Ben Gold says: “All industry participants must shape its future, rather than a handful that already dominate the market. We think this will be hugely beneficial to pension schemes and trustees in ensuring the industry and investment markets work effectively, and in the best interests of schemes and their members.
“We look forward to the outcome of the CMA investigation. We hope that it leads to an industry far more focused on helping schemes meet the promises they’ve made to their members. This requires clear recommendations about how investment consultants can ensure conflicts of interest are avoided, for example in the provision of fiduciary management services.
“We are excited about working with the CMA through their investigation, and sharing our thoughts on how the industry can improve.”
PLSA policy lead: investment and defined benefits Caroline Escott says: “Workplace pension schemes have £1.9tn of assets under management in the UK and pension schemes represent 57 per cent of all institutional investments. Both DB and DC schemes are important users of the services provided by investment consultants, including fiduciary management.
“Investment consultants can play a positive role in the institutional investment chain, and many PLSA members have told us they are happy with the services offered by their investment consultants. Nonetheless others have expressed concerns about the potential misalignment of incentives in the sector and the FCA’s studies have highlighted competition issues on both the demand- and the supply- side.
“We hope that the CMA investigation can examine these issues in depth and recommend comprehensive solutions. We do however urge the CMA to be mindful of the need for any investigative measures taken to be proportionate and timely to prevent avoidable costs or uncertainty for schemes during its review.”
Transparency Task Force founding chair Andy Agathangelou says: “This is a momentous decision by the FCA, evidencing their determination to protect the interests of the UK’s savers and investors. By managing out conflicts of interests and anti-competitive behaviours and by helping to ensure that all those who should be regulated are regulated, we can continue to undertake the cultural transfusion that is now taking place in the sector. Only then can we properly repair the self-inflicted reputational damage the sector has suffered for decades.
“Furthermore, in a post-Brexit world we mustn’t under-estimate the value to UK Plc of having the best regulated, most transparent and therefore the most competitive financial services market in the world. If the FCA and the CMA carry on their impressive work in this way that’s exactly what we’ll end up with, and that’s good news for everybody. If we look at all this from a global perspective, it is crystal clear to me that the UK’s Regulators are now leading the world in harnessing the transformational power of transparency to drive much-needed reform in the sector.”
A Willis Towers Watson spokesperson says: “As previously stated, we look forward to working constructively with the CMA following today’s announcement from the FCA. We hope that the process will help bring clarity and consistency to an industry which has to manage potential conflicts of interest. It is in all our interests to work together in continually improving industry practice to achieve the best outcomes for our clients, and the end-saver.”
Mercer global CIO and senior partner Andrew Kirton says: “Mercer is proud of the expert role we perform for our investment consultancy and fiduciary management clients; responding to their need for solutions to investment challenges that are increasingly complex. By drawing on the extensive intellectual capital within our firm, we create significant value for our clients by enabling them to make informed decisions about the investment strategy, asset allocation and asset manager choices necessary to meet their scheme objectives.
“In advising our clients we help them to access the broadest range of solutions to meet their objectives whilst utilising our scale to deliver the best value to them. Our advice is tailored to individual client requirements, is intellectually rigorous and as we are entirely independent of any asset manager, we are able to offer clients the widest possible range of solutions.
“It is important that our clients are confident that the investment consultancy market operates in their best interests and we will engage proactively and constructively with the CMA as they undertake this fresh, independent and evidence-based review.”
Aon Hewitt senior partner Tim Giles says: “We welcome the clarification that the investigation covers the breadth of our industry and look forward to a constructive engagement with the CMA.
“We note that many of the potential remedies outlined are in keeping with the initiatives we have previously suggested.
“Throughout this process we have made it clear that we want to achieve the best outcomes for our clients and scheme members, helping to drive down the costs and increase the value of asset management while setting the highest standards for the industry.
“We are proud of our track record and strongly believe that greater transparency in our industry will enhance competition.”