Investment consultants have been spared a major shake-up in their operations and business models after an investigation by the competition watchdog proposed just a handful of remedies.
In its 330-page provisional decision, published today (18 July), the Competition and Markets Authority (CMA) said, while a number of firms were available to choose from, its investigation had found some competition issues within both the investment consultancy and fiduciary management markets.
Throughout a 10-month investigation, the regulator had issued eight working papers on a variety of topics relating to the market - including barriers to entry and expansion, product recommendations, and trustee engagement - with a wide range of potential remedies depending on the severity of its conclusion.
Now, the watchdog has said a number of these should be introduced, noting that around half of pension schemes choose the same provider for fiduciary management as their existing investment consultants, and that many trustees have low levels of engagement when choosing their provider.
Among today's recommendations, the CMA said any scheme seeking to use fiduciary management for the first time must first run a tender - and those that already have a fiduciary manager but did not tender for them must do so within five years. This would "increase competition in the market and reduce the competitive advantage" held by the incumbent investment consultant, the CMA said.
Also, fiduciary management firms will need to be clearer on fees and performance, while The Pensions Regulator (TPR) will be tasked to issue guidance on how trustees should choose and scrutinise providers. The competition watchdog will also propose that both the investment consultant and fiduciary management communities come under the regulatory oversight of the Financial Conduct Authority (FCA).
The watchdog also makes a number of recommendations aimed at improving transparency in fiduciary management, including a requirement to report disaggregated costs to existing customers, minimum fee disclosure requirements to potential new clients, and a standardised methodology and template for reporting past performance.
There should also be basic standards for reporting the performance of recommended asset management products and funds, while trustees should set strategic objectives which investment consultant firms should periodically report against.
The CMA's chairman for the investigation John Wotton said: "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."
The investigation was launched after the FCA raised concerns about concentration in the market - notably among Aon, Mercer and Willis Towers Watson - upon publication of its asset management market study last June.
Remedies the CMA proposes to introduce
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