FCA authorisation for pools “costly and time-consuming”, says LGPS board

Plans to establish Local Government Pension Scheme (LGPS) pools as fully authorised investment management companies would likely consume extensive time and resources and will make little difference to how the system operates, according to the LGPS Scheme Advisory Board.

The government wants all eight LGPS pools to be regulated by the Financial Conduct Authority (FCA) and to be able to provide strategic asset allocation advice to their partner funds, along with full implementation of investment decisions.

Five pools are already authorised and have internal investment teams, but three – the Wales Pension Partnership, ACCESS and Northern LGPS – are not. The pools are expected to explain how they will achieve the government’s aims by 1 March 2025, with an implementation deadline of March 2026.

Published on 10 January, the Scheme Advisory Board’s response to the government’s “Fit for the Future” consultation also expressed concerns over the government’s “ambitious deadlines” for its proposals.

FCA authorisation process costly and time-consuming
The board warned that the FCA authorisation process “will come at a cost and involves significant resource and time”, noting that pools that have gone down this route have taken 18 to 24 months to secure authorisation.

“The board has concerns that requiring FCA authorisation may not lead to tangible evidential improvements in how pools operate or, crucially, how they deliver outcomes for their LGPS funds,” it said.

“It is also a process that is likely to take a lot of resource (both time and cost) over the coming 12 months, which could be better used on other matters.”

It acknowledged that several pools have developed the ability to provide investment advice, but raised concerns about requiring funds to take investment advice from the pool, instead suggesting that the pool should be part of a number of available sources of advice.

It also suggested that the proposal could create “perceived, if not actual, conflicts of interest” in the event that the pool is the fund’s primary – and perhaps only – provider of investment advice.

Advice plan “not fair on pools”
The government has attracted widespread criticism from across the pensions industry in response to its proposals.

“Funds need to be allowed to have another source of advice besides the pools,” said a policy expert who spoke on condition of anonymity. “The advice from the pool should be checked by an independent third party.”

“The Scheme Advisory Board is also right in saying there aren’t any assurances that if a pool is FCA regulated there will be tangible improvements,” they continued.

“It’s also not fair on pools to have to change their model at this moment in time when the government didn’t establish a preferred model when pooling was set up.

“The timelines aren’t feasible and we would hope the government accepts compliance if pools are working towards the goal of developing all the new services included in these proposals and working towards getting FCA authorised.”

Consultancies, which could lose out on LGPS business should the pools effectively enter the advice market, have also spoken out.

Hymans Robertson’s head of LGPS investment, Iain Campbell, said: “To force advice from a single provider, that is then responsible for implementation and performance, introduces conflicts of interest. It also removes competitively driven value for money, high service levels and innovation.”

Jill Davys, head of LGPS at Redington, said: “Significant work is needed for pools to be able to offer high-standard advice tailored to each administering authority’s unique circumstances, and without clear oversight there is a risk of pool companies setting strategic asset allocations which major on cheap solutions or assets for which they already have pool solutions, thereby limiting innovation.”