Several industry voices have said the Competition and Markets Authority (CMA) was right in its decision not to propose far-reaching reforms to the investment consultancy market.

In a report published today, 18 July 2018, the CMA suggested a number of proposals to improve competition in the market, including the mandatory tendering of fiduciary management contracts for pension schemes hiring one for the first time. However, it did not propose to break up the market, which includes three big firms, Willis Towers Watson, Mercer and Aon.

Commenting, Willis Towers Watson head of investment EMEA, Ed Francis, said the firm is “pleased that the CMA has acknowledged that structural reforms of the investment consultancy market would be detrimental to customers”. JLT Employee Benefits head of investment solutions Mark McNulty added that the CMA has “reached a correct assessment of the issues which need addressing and is right to have dismissed far-reaching changes – which were neither needed nor proportionate”.

Aon global business officer and head of EMEA/APAC investment, Andy Cox, said: “We are not surprised that the CMA has found a competitive market within the investment consulting industry and low barriers to entry. We do not believe that the CMA has presented sufficient evidence to show any adverse effect on competition, nor do we recognise low levels of engagement among our trustee clients. Despite these concerns, the CMA has come forward with provisional remedies and recommendations that we support in principle.

Mercer CEO Fiona Dunshire said the report by the CMA brings clarity and gives reassurance to schemes that the market operates in their interests. “The report describes a market that is not concentrated, where barriers to entry are not significant and where trustees are generally satisfied with the services they receive. It also highlights that high-quality investment consultants add considerable value for pension scheme members. The CMA has proposed measures which aim to help trustees better evaluate providers and create consistency across the market,” she said.

The report was also welcomed by other industry stakeholders; the Pensions Management Institute’s newly elected president Lesley Carline said the CMA gave a “pragmatic and realistic view of the provision of both investment consultancy and fiduciary management services”. Transparency Task Force founding chair Andy Agathangelou stated that it is now “crystal clear” that the CMA do believe that there are many characteristics of the investment consultancy and fiduciary management sectors that are creating an adverse effect on competition.

“My overall thoughts on what the CMA is proposing to do to help remedy the way these markets operate is that they have come up with a suite of sensible suggestions that will increase the likelihood of pension scheme members getting better outcomes and that’s what it should all be about. Furthermore, the CMA seem minded to bring about changes that pro-consumer market participants should be able to adapt to without too much fuss or bother,” he added.

PLSA policy lead: investment and defined benefit Caroline Escott said: “With millions reliant on pensions to fund their retirement, it’s crucial we have an investment market that works efficiently and transparently, and serves the interests of both pension schemes and savers. This investigation is an important step in helping pension trustees recognise when their investment consultants and fiduciary managers are performing well, as well as understanding what actions to take when they are not.”

She said the PLSA is pleased the CMA has focused on improving information around fees and investment performance. “We also support moves to improve the tendering process through greater guidance and ensuring schemes have to run an initial tender for fiduciary management services. One of our members’ main concerns about this market is the potential conflict of interest when investment consultant firms steer their pension schemes clients to their in-house fiduciary management services. Given the CMA's findings in this area, we therefore welcome broadening the Financial Conduct Authority’s oversight of investment consultants.”

In addition, Society of Pension Professionals chair of the investment consulting committee John Nestor said: “Today’s announcement from the CMA is a very positive step forward for the investment consulting and fiduciary management industries. Setting clear objectives should be a matter of course and part of good scheme governance but reinforcing this is clearly very welcome.

“Going forward, the requirement for schemes appointing their first fiduciary manager to put the decision out to open tender, and for existing relationships to retender within five years, will increase competition. This, in turn, should lead to new entrants coming into the market further increasing market tension, leading to improved standards and reduced costs for trustees and schemes. We embrace what the CMA is suggesting and believe that the recommendations put forward are pragmatic and well considered. The CMA has clearly done its homework.”

Share Story: