The top three consultants have put together a package of measures designed to increase transparency and competitiveness in the consultancy and fiduciary management markets. Helen Morrissey gets the industry response
When it was published last November, the FCA's Asset Management Market Study pointed to a lack of competition in the investment consultancy market with 60% of business held by just three firms - Aon Hewitt, Mercer and Willis Towers Watson.
These firms are also active in the fiduciary management space and the study expressed concerns around the conflicts of interest in acting as an investment adviser and asset allocator.
The findings of the study led the FCA to consider referring the market to the Competition and Markets Authority (CMA) for investigation.
In a bid to avert this, Aon Hewitt, Mercer and Willis Towers Watson have worked together to submit a package of measures to the FCA designed to advance competitiveness and transparency in the investment consultancy and fiduciary management industries.
While further details were not released, this package of ‘undertakings in lieu' seeks to address concerns around review of services, transparency of performance and fees, and conflicts of interest.
Commenting on the move, Aon Hewitt chief executive officer EMEA Andy Cox says: "This package reflects both the concerns raised by the FCA and our own views on how the industry can progress effectively. We operate in a highly competitive and innovative marketplace, and are in complete support of measures to enable trustees to monitor and better evaluate their investment consultants. The package represents readily implementable changes in place of a protracted market investigation."
He added: "We are proud of our track record in adding value for our clients, and believe that greater transparency and consistency of approach across the industry will lead to more informed decision-making - and ultimately to improved outcomes for scheme members."
While more needs to be done to stoke competition, it would seem that many would like to avoid a CMA investigation if at all possible.
"The FCA wants to refer the investment consultant market to the CMA and while we would be supportive of this, these investigations can take a very long time, during which the FCA will find itself limited in what it can do," says Financial Inclusion Centre director Mick McAteer. "The FCA has a whole range of conduct of business powers it can utilise and maybe it is time asset allocation advice given by consultants came under the remit of the FCA. There are plenty of smaller investment consultants snapping at the heels of the big three and a better regulated market would help them."
However, Hymans Robertson head of investment consultancy John Walbaum disagrees that this strategic advice should be brought under the remit of the FCA as it is already heavily regulated by other bodies. He also believes the level of competition among consultants is growing.
"We adhere to codes of practice and professional standards bodies and we believe that level of oversight is sufficient," he says. "I also believe that over the last few years we have seen more competition in the market, with several new players and less concentration in the top three players. Of course that's not to say more competition wouldn't be welcome but I feel that is the direction of travel as we see increased focus on governance and the professionalisation of trustee boards. These boards often have both formal and informal ways of measuring their consultants to make sure they are getting what they need."
Punter Southall Investment Consulting managing director Danny Vassiliades also agrees that the investment consultancy marketplace is competitive: "With regards to competition, there will always be big players and lots of smaller ones operating in a market - that is just the way it is. There is no barrier to competition.
"Investment strategies play out over years, even decades, and over that time you build a rapport. People only really change if something goes wrong. Some trustees probably identify with a certain part of the market and seek to source their consultants from that."
Conflict of interest
Walbaum believes the key issue is not so much competition within the market but the potential conflicts of interest and complexity that arise from a firm acting as both an investment consultant and fiduciary manager.
Vassiliades agrees, saying there needs to be a "much clearer demarcation between investment consultants and fiduciary managers as some schemes are still being rolled into a fiduciary arrangement without a full market review."
Meanwhile McAteer takes issue with the extra complexity and fees this places on schemes and their members.
"We are in a ridiculous situation of paying advisers who advise on how to choose fiduciary managers who are then paid to advise on investments," he says. "There are layers and layers of fees being paid that affect member outcomes. You have to ask if such an approach is really adding value."
It will be interesting to see how the FCA responds to the package of measure put forward by the top three consultants and whether the decision will be taken to refer the market to the CMA. However, as several providers believe the level of competition is growing in the market, it is likely the FCA will turn its attention to the potential conflicts presented by acting as both a consultant and fiduciary manager.
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