The CMA has today (Wednesday 12 December 2018) published the final decisions following its investigation into the market for investment consultants which began in September 2017. The report sets out the CMA’s remedies for the industry to address the competition issues it has found during its investigation.
These have been designed to:
- improve transparency when appointing and assessing both investment consultants and fiduciary managers; and
- tackle the incumbency advantage in the fiduciary management market.
The remedies imposed on fiduciary management providers highlight that it is distinct from providing an advisory service. The argument used by some fiduciary managers that fiduciary management is a natural extension of an advisory service has not been accepted by the CMA.
The CMA has not made it a requirement for customers to appoint separate firms for strategic advice and portfolio implementation services, which are combined under a fiduciary management arrangement. However, in our view the remedies are designed to encourage customers to consider very carefully the suitability of appointing a single firm for both services.
Paul Gibney, Partner at LCP, said: “We consider a fiduciary management service to be a specialised form of asset management. LCP’s view is that trustees should treat the appointment and ongoing monitoring of a fiduciary manager as they would that of any other asset manager.”
The key findings of the investigation are:
- Within investment consultancy, there is a low level of engagement by some trustees when choosing and monitoring their provider. Trustees find it hard to access and assess the information needed to evaluate their consultant.
- In fiduciary management, firms providing both investment consultancy and fiduciary management have an incumbency advantage. This reflects low trustee engagement when first purchasing the service, as well as consultants steering advisory clients to their own products. Prospective customers lack sufficient information on performance and fees.
The eight main remedies proposed, most of which apply to fiduciary management, seek to address these issues.
Most striking is the remedy that requires trustees to conduct a tender exercise when first appointing a fiduciary manager to manage assets greater than 20% of the scheme’s total or where an existing mandate has not been subject to competition.
Paul Gibney added:
“The CMA’s review challenges investment consultants to communicate more clearly to trustees what they do and why it is of value.
“The review also highlights that fiduciary management is not a natural extension of an investment consultancy service, but a quite different arrangement.
“The CMA has today effectively told UK pension scheme trustees to take extra care when appointing a fiduciary manager, and that they must run a tender exercise when first adopting a fiduciary management arrangement.
“We welcome the publication of the Final Decision Report. The CMA has conducted a thorough review of the investment consultancy industry, dedicating significant resource and effort to understand the market and its participants. Ultimately, the CMA’s scrutiny of investment consultants will improve the standard of service and will benefit pension scheme trustees and members.”