UK Authority Considers Competition Issues Arising From the Provision of Investment Consultancy Services and Fiduciary Management Services

The U.K. Competition and Markets Authority has published the third in a series of working papers on specific aspects of its market investigation into the supply and acquisition of investment consultancy services and fiduciary management services. The working paper should be read alongside the Issues Statement on the investigation, which was published in September 2017. The intention to publish a series of working papers on aspects of the investigation was outlined in a progress report in February 2018. The first working paper, relating to information on fees and quality, was published on March 1, 2018. The second working paper on asset manager product recommendations was published on March 22, 2018.

The third working paper provides the CMA's initial analysis of competition issues arising when firms offer both investment consultancy and fiduciary management services, in particular, where customers receiving investment consultancy services are directed towards a firm's fiduciary management services. The CMA is concerned that customers may not always receive the solution or deal that is in their best interests. In addition, conflicts of interest may arise between the firm and its clients. The CMA is of the view that it is not clear whether existing regulation fully addresses these potential conflicts of interest.

The CMA presents potential remedies to the competition aspects arising from the provision of investment consultancy services and fiduciary management services. The remedies fall into two separate categories. The first category contains remedies aimed at encouraging more active consideration of the fiduciary management provider by trustees. The potential remedies identified include: (i) mandatory tendering on first adoption of fiduciary management services, (ii) trustees to report to scheme members, (iii) mandatory tendering within a fixed period after first appointment; (iv) mandatory switching; (v) periodic mandatory tendering; and (vi) the provision of guidance to trustees on the adoption and selection of a fiduciary management provider.

The second category of remedies aim to reduce the risk of conflicts of interest by controlling or incentivizing firm behaviors. The potential remedies identified include: (i) separate advice on the merits of using fiduciary management services from marketing materials about the firm's own fiduciary management services; (ii) legally separate their advisory and consultancy businesses; (iii) abstain from cross-selling advisory and fiduciary management services; (iii) adopt stronger internal separation and controls; (iv) provide standard regulatory disclosures to trustee boards when first advising on the use of fiduciary management services; (v) regulatory requirement to act in trustees' and members' interests; and (vi) desist from acting as an evaluator or offering comparative advice.

Feedback on the analysis presented in the working paper should be provided by April 12, 2018. The working paper will then be finalized and will form part of the CMA's provisional decision report on the investigation, which is scheduled to be published in July 2018.

View the working paper.

View details of the Issues Statement.

View details of the working paper on information on fees and quality.

View details of the working paper on asset manager product recommendations.

View the CMA case page.