The CMA Investment Consultants Market Investigation

The Competition & Markets Authority (‘CMA’) launched an investigation into the investment consultancy and fiduciary management services used by UK pension schemes in September last year.  The investigation has identified some issues that impact competition in these markets including low levels of engagement from some schemes, lack of transparency in information (fees and performance), trustees not having the necessary skills or time to scrutinise their consultants. This has led to trustees finding it difficult to know if they are getting a good deal and if the quality of service could be better elsewhere.

The CMA has provisionally proposed some changes that it believes will improve competition and help trustees gain more information, in order to make more informed choices and get a better deal from investment consultancy and fiduciary management services. The CMA has proposed the following key changes, which it is consulting on before making any final decisions:

  • Mandatory tendering for moving into fiduciary management and warnings when selling fiduciary management.
  • The Pensions Regulator to provide new and improved guidance for pension schemes when tendering for investment consulting or fiduciary management services.
  • Better information on fees (for fiduciary management only) and standardised performance reporting (both advisors and fiduciary management).
  • Trustees will be required to set their investment consultant strategic objectives, and firms must report against these.
  • Regulation of investment consulting and fiduciary management services by the FCA.

The CMA is consulting on these proposals with responses expected by 24 August 2018 and the deadline for its final report is 13 March 2019.

What does this mean for trustees?

Trustees will now have access to more guidance, better information and greater transparency when making decisions on their investment adviser and fiduciary manager. This will hopefully drive better outcomes in terms of a better quality of service and getting value for money.

Dalriada Trustees welcomes these changes as they will help trustees to fulfil their primary duty to act in the best interest of members.  These changes are a good way to encourage more competition and ensure that trustees have access to better information when making choices.

However, for some schemes this does provide an additional governance burden where they may not have the time or expertise to deal with the additional requirements set out by the CMA.

This is where a professional trustee can provide invaluable support to the scheme as they have specialist skills and knowledge in running schemes, that can help to make more informed decisions. The CMA has mentioned in their review that schemes with a professional trustee are likely to be more engaged, which can facilitate better decision making. Therefore, more schemes should consider this if they feel as though they are out of their depth, or simply do not have the time to needed to fulfil their duty to members.

This can help to drive better outcomes for the scheme. For example, the professional trustee’s experience of the market can be leveraged to challenge any advice received or costs quoted by the current  advisers, which may not have happened otherwise. This in turn could lead to more competitive pricing or to receive a better service, which the CMA is ultimately looking to achieve.

Whilst the use of a professional trustee is not for every scheme, there are many that would clearly benefit and so we would urge trustees and companies to consider this as a possible solution.