The CMA was asked to probe the sector following a reference from the Financial Conduct Authority (FCA) in September 2017 following its Asset Management Market Study.
Its provisional decision report, published today, identified an adverse effect on competition which may result in material customer detriment in both markets, but added it has greater concerns about fiduciary management.
Fiduciary management is the process whereby the trustees of institutional investors, such as pension schemes, charities and insurers, outsource all or some of the investment decisions to a third-party consultant.
Incumbency advantage
Traditional investment consultants have increasingly come to offer fiduciary management and the three largest players – Aon Hewitt, Mercer and Willis Towers Watson – now control about 50% of the market, the CMA said.
The CMA believes firms which provide both investment consultancy and fiduciary management have an incumbency advantage stemming from low customer engagement at the point of first moving into the service, investment consultants moving clients into their own services and the fact there is no comparable information on historic performance.
Just 34% of customers buying fiduciary management carry out a formal tender, according to the CMA. It also found tender rates were lower, around 14%, among customers who bought fiduciary management from their existing investment consultant.
John Wotton, chairman of the CMA’s Investment Consultants Market Investigation, said: “We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members. They may lack the information they need to compare competing offers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.”
Mandatory tendering
To address the issues, the CMA has proposed introducing mandatory tendering when pension trustees select their first fiduciary manager and the requirement to run a competitive tender within five years if the existing mandate was awarded without a competitive tender.
Ed Francis, head of investment, EMEA, at Willis Towers Watson, said: “The requirement for a competitive tender on appointment of a fiduciary manager is in principle a sensible proposal – the large majority of our fiduciary management clients have appointed us following a competitive tendering process.”
The CMA also called for a common set of industry standards to which providers must adhere when reporting investment performance and greater support for trustees running tenders from The Pensions Regulator.
Elsewhere, it suggested fiduciary managers must provide clearer information on fees and how they have performed for other clients to enable trustees to make informed comparisons between providers.
Andy Agathaneglou, founding chair of the Transparency Task Force, said: “The CMA seems minded to bring about changes that pro-consumer market participants should be able to adapt to without too much fuss or bother. I hope and expect that many of them will welcome these proposed changes because the spotlight of scrutiny that the CMA has been shining on the market has made it obvious to all that there are conflicts of interest and non-competitive practices that need managing out of the system.”
