The Financial Conduct Authority (FCA) is to ask the Treasury to extend its powers to allow it to crack down on investment consultants and fiduciary managers.
In a letter sent to the CMA on February 21 and published today (February 26) the FCA stated it will ask the Treasury to extend its regulatory remit to include investment consultancy services and asset allocation advice.
The FCA stated it fully backed the CMA's eight recommendations made in December following its investigation of this market, and once its remit has been changed, intends to consult on rules for firms in these sectors.
The CMA identified a lack of competition in both markets which it warned could lead to substantial customer detriment.
On the one hand it found a low level of engagement by some pension fund trustees in choosing and monitoring their investment consultant and fiduciary manager, on the other it found established firms had a considerable advantage over new smaller ones.
The remedies, which are to come into effect six months after a statutory order has been made, will see pension scheme trustees obliged to tender ahead of purchasing fiduciary management services where the mandate would cover 20 per cent or more of the scheme’s assets.
Firms which offer both fiduciary management and investment consultancy services will be required to separate the marketing of fiduciary management services from the provision of investment consultancy advice.
Fiduciary management providers will also be required to break down fees for current and prospective customers, including providing enhanced disclosure of underlying investment fees.
Alongside this they will be required to report past performance to prospective customers using a standardised methodology.
In his letter, Chris Woolard, director of strategy and competition at the FCA, wrote: "We support the recommendation to extend our perimeter to capture the full scope of investment consultancy services.
"We agree that due to the size of the market for investment consultancy services a small change in the quality of service provided could have a significant impact on savers’ retirement outcomes.
"We also note the broad support from across industry for an extension of our perimeter to capture investment consultancy services.
"Bringing investment consultancy services into our perimeter would allow us to consider future market developments which may affect pension savers.
"It would also allow us to consult on rules to incorporate the CMA’s remedies into our regulation of the sector. This would include the elements of remedy 8 as they relate to investment consultancy services, which we agree we are best placed to supervise."
The CMA's investigation followed the FCA's Asset Management Market Study in 2017, which had uncovered potential concerns around the role investment consultancies and fiduciary managers played in helping institutional investors get value for money from asset management services.
Investment consultancy and fiduciary management services are estimated to be influencing about £1.6trn of pension assets in
the UK.
The CMA expects up to half of all households in the UK to be affected by the services provided by these firms.
Mr Woolard wrote: "It is crucial that we get the regulation of these sectors right. We are committed to ensuring that markets for financial services are fair, effective and work in consumers’ interests. This includes savers in pension schemes."
david.thorpe@ft.com
