CMA confirms concerns about investment consultants

CMA confirms concerns about investment consultants

Pension schemes that have an existing relationship with an investment consultant are more likely to get a raw deal if they use the same firm’s fiduciary management service without going through a formal tender process, the Competition and Markets Authority (CMA) has said.

In an updated analysis of the investment consultant market, published on Thursday (25 October) as part of its wider probe into the sector, the CMA confirmed the benefit of tendering in this space.

In the 12-page paper, titled Working paper: Market outcomes: updated results, the CMA found "higher quality" investment consultant firms typically had lower market shares than "lower quality" investment firms, and that this effect had persisted over time.

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The new results were based on an extension to the previous sample dataset, following criticism from some of the major consultant firms. A final report is due in December.

The revised findings should be a disappointment to the UK’s major investment consultants, who had criticised the CMA’s original approach, XPS Pensions Group, a mid-tier challenger in the consultant market, has said.

Back in September, Fiona Dunsire, the chief executive officer of Mercer, one of the largest UK consultant groups, had written to the CMA calling its provisional decision on the market "flawed" due to inadequate evidence and "unrepresentative samples".

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.

In its provisional report out in July the CMA recommended mandatory tendering for first time fiduciary management, and the inclusion of mandatory warnings on the sale of such products. It stated it would 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.

XPS Pensions head of Investment Patrick McCoy said: "The CMA redid the analysis and published results confirming the material benefit of tendering.

"Tendering is a standard commercial practice which has obvious benefits and the CMA has now shown there to be a real material benefit to tendering and independent oversight."

He said the CMA review should act as a catalyst for trustees to consider whether they really are getting the best deal.