Pensions industry welcomes watchdog crackdown

Pensions industry welcomes watchdog crackdown

Several pensions industry figures have expressed support for the Competition and Markets Authority report on how trustees oversee and invest their funds.

The CMA’s report revealed pension trustees often continued using an investment consultancy for fiduciary management even if a better deal was available elsewhere.

It found here were features of this market which had led to incumbency advantage which prevented, restricted and distorted competition.

Article continues after advert

A number of recommendations were made in the report, including a call for the Financial Conduct Authority and The Pensions Regulator to be given more powers to ensure business practices of pension trustees and fiduciary management companies are subject to greater accountability.

As a result of the CMA's investigation pension funds will now be required to competitively tender all fiduciary management contracts when they are appointing a management firm for more than 20 per cent of the assets for the first time.

The FCA has responded to the findings saying it would work with HM Treasury and The Pensions Regulator to take forward the CMA's recommendations.

The Pensions and Lifetime Savings Association's policy lead on investment and stewardship Caroline Escott said: "We believe it is good practice for schemes to assess fiduciary managers before choosing one – especially as a fiduciary management arrangement can be difficult to unwind – and are pleased to see the CMA’s remedies in this area.

"One of our members’ concerns has been the potential for misalignment of interests between consultants and their pension scheme clients, so ensuring investment consultants have a clear separation between their investment advice and marketing of their fiduciary management services should be a helpful step in addressing potential conflicts."

Ms Escott added: “We believe the CMA’s findings highlight the continued need to drive up standards of governance across schemes. We think this is best addressed by ensuring schemes are well-resourced and benefit from effective executive support, as well as a regulatory approach which more clearly focuses not just on processes but also on people."

Ed Francis, head of investment for Europe, the Middle East and Africa at Willis Towers Watson echoed the PLSA’s stance. He said:  "We are pleased that the final recommendations have addressed many of the concerns that we raised; for example, the tendering regime now being put forward no longer requires a fully open process, which will ensure it is not excessively onerous and costly to pension schemes.

"The revisions to the tender regime mean that it should now not act as a deterrent to the take up of fiduciary management for those schemes that will benefit from that approach.

"The very thorough process that the CMA has undertaken should give customers significant comfort that the industry is committed to high levels of transparency and well aligned to serve them effectively both now and in the future."

The CMA found the investment consultancy market was dominated by three large firms - Aon, Mercer and Willis Towers Watson - with these three accounting for up to half of the market in revenue terms, but it did not find that it was highly concentrated.