The Competition and Markets Authority (CMA) will publish its provisional decision as to whether there are adverse effects on competition in the investment consultants market on the morning of 18 July.
The investigation, which was launched last September following a referral from the Financial Conduct Authority (FCA), has been seeking evidence on whether a lack of competition also leads to harm for clients.
Between March and May this year it published eight working papers, setting out the evidence it had received and emerging findings across topics including barriers to entry and expansion, gains from engagement, product recommendations, and trustee engagement.
Across the working papers, it found:
- Competitive processes are not providing trustees with the necessary information to judge the value for money of investment consultants and fiduciary managers
- Trustees could not be well-equipped to choose and monitor the performance of their providers
- On average, products recommended by investment consultants fail to outperform net of fees either their respective benchmarks or unrated products
- On a gross of fees basis, there was outperformance, but this is not a good "approximation of the return on investment"
- Investment consultants steer their clients towards their own fiduciary management services, with 49% of clients having used their existing consultant's services
- Nearly three quarters of fiduciary management clients at the three largest providers of both services - Aon, Mercer, and Willis Towers Watson - were also consulting clients
- Trustees may find it hard to assess value for money of their fiduciary manager and then switch, due to the time and costs in the tendering process
- DB trustees, especially those of large schemes with investment sub-committees, are more likely to be engaged than their small-scheme single-board DC counterparts
- There are no concentration issues in the market, with a number of well-established mid-sized firms and no firm making up 50% of the market
- Engaged pension schemes, professional trustees, and tendering leads to lower fiduciary management costs
The papers also included potential remedies, depending on its final decision, such as mandatory tendering or switching of investment consultants, greater education and guidelines from The Pensions Regulator for trustees, and segregation of advice and marketing materials at firms which other both investment consulting and fiduciary management.
The provisional decision will be open to further industry feedback, including response hearings, until October, before the final decision is required to be published by 13 March next year.
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