GLOBAL - The UK's Financial Services Authority (FSA) may investigate Aon Consulting's manager-of-manager offering as a direct result of pressure from IPN's sister publication Global Pensions.
Aon Consulting appears to be at loggerheads with FSA rules regarding conflict of issues by combining the marketing arms of its consultancy service and its manager-of-manager service.
One FSA rule states that a firm may manage a conflict by establishing internal arrangements (Chinese walls). A spokeswoman for the FSA said that it investigates any potential breaches of its rules once they come to its attention, but, under its own rules, is unable to comment on specific cases.
“If you are regulated by us, you have to manage conflicts of interest,” she said.
There has also been a massive international outcry in the pensions industry against consultants selling investment products - sometimes known as implemented consulting. A significant number of senior industry figures have told Global Pensions that they see a clear conflict of interest when consultants offer this service.
The high profile names who are quoted in Global Pensions’ exclusive survey include Paul Myners, Alan Rubenstein (chairman of the NAPF Investment Council), Peter Thompson (chairman, NAPF), Trevor Nash (policy advisor, Department of Work and Pensions) and Andrew Dyson (managing director institutional clients, Merrill Lynch Investment Managers).
These combined with a host of trustees and fund managers who have spoken out against implemented consulting leaves consultants who offer a manager-of-manager product with little support in the industry.
“Of course there is a conflict ... If trustees become better informed and more self-confident they will challenge these conflicts,” said Paul Myners, author of the Myners Report.
The growing backlash against implemented consulting was highlighted by a speech given by Mercer’s Andrew Kirton at the NAPF’s annual investment conference in Edinburgh in which he addressed - for the first time in public - the conflict issue. Kirton’s speech was a direct result of articles written recently in Global Pensions.
“Consultants bundling services does give us a conflict of interest,” he admitted.
But Kirton’s decision to try to deflect the conflict issue backfired when in the Q&A that followed his speech he was severely criticised by delegates. “Consultants have to make their mind up what their business is. I want totally independent advice,” said Keith Neale, treasurer, Essex County Council Pension Fund. This response, which was given a round of applause by around 700 delegates, was typical of the mood.
Consultants such as Aon and Frank Russell offer manager-of-manager products directly, while William M Mercer has tied up with Attica Asset Management as its “preferred provider” for its new Mercer 360 product in the UK.
The incentive for consultants is clear. Pressure on consultancy revenues has meant that traditional consultants are seeking new revenue streams and having a manager-of-manager product allows them to charge pension funds a lucrative basis point fee.
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