CMA revamps pension investment consultancy sector

Investment consultants to the UK’s £1.6 trillion pension fund industry will be forced to compete for business more and provide greater transparency over fees following a probe by the competition watchdog.

The Competition & Markets Authority (CMA) started a review of the sector for investment advice to pension schemes last September following antitrust concerns from the Financial Conduct Authority (FCA), the City regulator.

Pension trustees who oversee companies’ pension schemes are advised by investment consultants on how to invest their funds, although some delegate investment decisions to so-called fiduciary managers.

The CMA said on Wednesday that both services are provided by a number of firms that have influence over half of all UK households’ retirement savings. The sector is dominated by Mercer, Willis Towers Watson and Aon.

It tabled measures for there to be greater competition in the sector, although investment consultants escaped a forced break-up.

It called on pension trustees who delegate investment decisions for more than 20% of their scheme assets to a fiduciary manager to run a more competitive tender process with at least three firms.

Those trustees who have appointed a fiduciary manager without a bid process have to allow companies to bid for the business within five years.

Fiduciary managers must also provide potential clients with greater clarity on their fees and performance.

John Wotton, chair of the CMA’s probe, said: “This is an extremely important sector that influences how well millions of people’s pension savings are invested, yet we’ve found that many pension trustees may not be getting the best value for money for their members.

“It’s therefore imperative we make these changes so that the sector works better for those it is meant to support – pension scheme members.”

The CMA also recommended that the Government broaden the scope of both the FCA and the Pension Regulator to ensure greater regulatory oversight of the sector.

Implementation of the new requirements is expected to begin late next year.

Paul Gibney, partner at pension consultancy Lane Clark & Peacock, said fiduciary management service is a specialised form of asset management and that “trustees should treat the appointment and ongoing monitoring of a fiduciary manager as they would that of any other asset manager”.

“We welcome the publication of the final decision report … the CMA’s scrutiny of investment consultants will improve the standard of service and will benefit pension scheme trustees and members.”