Willis Towers Watson, Aon Hewitt and Mercer Global have all said they will work with the Competition and Markets Authority (CMA) as it investigates the investment consultancy and fiduciary management market.
The CMA will examine concerns the market is too concentrated, with high barriers to expansion for smaller firms and large risks of conflicts of interest arising in vertically integrated firms.
Undertakings in lieu dismissed
An offer by the trio of influential companies, which represent 56% of the UK consultancy market, to conduct undertakings in lieu of notice into the concerns was rejected by the Financial Conduct Authority, when it released its Asset Management Market Study in June.
The issue was instead referred to the CMA for investigation, the first time the FCA has taken such firm action.
The regulator’s executive director of strategy and competition Christopher Woolard, said it had “serious concerns” about the market and labelled the recommendation to the CMA as a “significant step”.
“It is important that trustees can be confident they are getting good quality advice and value for money from their investment consultants,” he added.
Impact on institutional investors
Advice from the 12 largest investment consultants affects £1.6trn of assets in the UK, mostly held in pension funds.
In 2015 institutional investors spent more than £242m on investment advisory services provided by investment consultants, the FCA said.
Responding to the news on Thursday, all three consultancy firms said they supported the investigation.
Tim Giles, a senior partner at Aon Hewitt, said: “We welcome the clarification that the investigation covers the breadth of our industry and look forward to a constructive engagement with the CMA.
“We note that many of the potential remedies outlined are in keeping with the initiatives we have previously suggested.”
Among the remedies suggested by the FCA in Thursday’s announcement was a requirement for consultants to provide a template for sending standardised performance data to clients, forcing firms to publish performance and fees to the public and improving redress procedures.
Fees under microscope
Fee structures that “misalign incentives” for consultants could also be banned after analysis by the regulator found hourly fees encouraged consultants to produce complex strategies to make more money.
Ed Francis, head of investment for EMEA at Willis Towers Watson, said: “As previously stated, we look forward to working constructively with the CMA following today’s announcement from the FCA.
“We hope that the process will help bring clarity and consistency to an industry which has to manage potential conflicts of interest.”
Mercer Global’s CIO Andrew Kirton, added: “It is important that our clients are confident that the investment consultancy market operates in their best interests and we will engage proactively and constructively with the CMA as they undertake this fresh, independent and evidence-based review.”
