CMA announces measures to reform investment consulting

Following an investigation, the Competition and Markets Authority (CMA) has announced a series of measures to improve competition in the investment consulting and fiduciary management sector. Some of the leading investment consultants offer fiduciary management, which means that pension funds delegate much of their investment management to the fiduciary manager, who implements an agreed strategy and selects external fund managers.

The CMA investigation was requested by the Financial Conduct Authority (FCA), over concerns that investment consulting firms were winning business at pension funds as fiduciary managers, without a proper appointment process taking place. The CMA said it found competition problems in the investment consulting and the fiduciary management market. In particular, it found that in some cases, pension fund trustees appointed their existing investment consultant to be their fiduciary manager, even if there was a better option available elsewhere. Only a third of pension fund trustees asked fiduciary managers to compete for business through a competitive tender. The CMA also found that investment consultants offering a fiduciary management service have an advantage when it comes to getting business from existing clients, as they could steer customers to this service.

The CMA said that in future, pension fund trustees wanting to delegate investment decisions for more than 20% of their scheme assets must run a competitive tender with at least three firms. In addition, fiduciary managers must provide clear information on fees and performance to their clients, so trustees can compare different providers.

John Wotton, chair of the CMA’s Investment Consultants Market Investigation, commented: “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. 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 new requirements are expected to come into effect in 2019.