Investment consultants have urged the Competition and Markets Authority (CMA) to ensure the new mandatory tender requirement is proportional for small firms, after the regulator published its provisional report into the sector today.
The biggest pension investment firms will face increased regulation and an obligation to put contracts out to tender, but won’t be broken up, following the CMA's investigation of the market.
In its report into the sector out this morning (18 July), compiled following a 10-month investigation, the CMA found an "adverse effect on competition and that material customer detriment may be expected to result from it in both the investment consultancy and the fiduciary management markets".
It recommended mandatory tendering for first time fiduciary management, and the inclusion of mandatory warnings on the sale of such products. It will also require greater transparency from firms about the investments.
But it stopped short of forcing the largest firms in the industry, Willis Towers Watson, Mercer and Aon from having to sell off their fiduciary management or investment consultancy businesses.
The Financial Conduct Authority (FCA) had asked the CMA to investigate competition levels in the investment consultancy and fiduciary management sectors after detecting low switching rates and an over-reliance on large players.
It thought barriers to expansion were restricting smaller and newer consultants from developing their businesses.
The regulator said investment consultants advise on at least £1.6trn of assets, impacting the lives of millions of people. Such firms typically advise pension fund trustees on the funds to use for clients.
Ed Francis, head of investment for the EMEA region at Willis Towers Watson welcomed the recommendations set out in today’s report.
He said: "We have advocated stronger regulatory oversight of the investment consultant and fiduciary management market for a number of years, and look forward to working with the regulatory authorities and wider industry to ensure that best practice becomes normal practice, to the benefit of pension schemes and their members."
He said the large majority of fiduciary management clients had appointed Willis Towers Watson following a competitive tendering process.
But he warned any mandatory tender process would need to be proportionate.
He said: "We will urge the CMA to consider the proportionality and cost to schemes of a mandatory tendering requirement, particularly for smaller pension schemes, and stand ready to work with the Pensions Regulator in developing support for such schemes."
Similarly, Tim Giles, Aon's head of investment for UK and Ireland, said: "We support competition at the point of entry into fiduciary but will work with the CMA to ensure that the approach to tendering is done in a proportionate way and without any unintended consequences for pension schemes."
Sinead Leahy, co-head of pension investment consulting at PWC, welcomed the regulator's focus on creating greater transparency.
She said: "Pension scheme trustees sometimes have difficulty assessing whether they are getting value for money. Therefore, greater transparency around strategic objectives, performance and fees for investment consultants and fiduciary managers is a significant step in the right direction.
"In addition, the CMA’s proposal for pension scheme trustees to undertake a competitive tender of their fiduciary manager should lead to greater competition in the market."
PWC believes schemes with fiduciary managers should also undertake regular independent oversight of their arrangements to ensure the trustees’ objectives are being met in an efficient and cost-effective way.
David.Thorpe@ft.com
