UK Competition Authority Publishes Final Report on the Investment Consultants Market Investigation

The U.K. Competition and Markets Authority has published its Final Report on the Investment Consultants Market Investigation. The Investigation assessed the supply and acquisition of investment consultancy services and fiduciary management services. In its Provisional Decision Report, published on July 18, 2018, the CMA concluded that there is an adverse effect on competition which may result in material detriment to customers in both the investment consultancy and fiduciary management markets, although there are more concerns with the fiduciary management market. This finding is confirmed in the Final Report.

In investment consultancy, the CMA considers that there is a low level of engagement by some customers in choosing and monitoring their provider. In addition, some customers may have difficulty in accessing and assessing the information needed to evaluate the quality of their existing investment consultant and identifying whether it would be to their advantage to use an alternative provider.

In fiduciary management, the CMA has found that firms providing both investment consultancy and fiduciary management have an "incumbency advantage" as a result of low customer engagement at the point of entry and due to investment consultants directing their advisory customers towards their own fiduciary management service. In addition, the CMA's view is that prospective customers cannot access comparable information on providers' historic performance and do not have clarity on fees because they cannot access information to assess whether a better fee deal is available from an alternative provider.

The CMA's Final Report describes the CMA's remedies to address the situation. These are:

1. Introducing a duty on pension scheme trustees to carry out a competitive tender before awarding a fiduciary management mandate of 20% or more of their scheme assets for the first time. Where a trustee has already delegated this level of scheme assets to a fiduciary management provider, but did not carry out a competitive tender, they must do so within five years. The CMA is recommending that The Pensions Regulator provides guidance to pension schemes on running competitive tenders for fiduciary management and investment consultancy services.
2. Prohibiting fiduciary management firms from accepting a mandate from a customer subject to a competitive tender obligation unless the customer has confirmed that it was competitively tendered.
3. Requiring investment consultancy firms that also offer fiduciary management services to:
   • separate their marketing of fiduciary management from their provision of investment consultancy advice;
   • identify the marketing of fiduciary management as such; and
   • remind pension scheme trustees of their duty to tender for this service in certain cases.
4. Requiring investment consultancy firms and fiduciary managers to report the performance of any recommended asset management products and their own investment products, where such reporting is not already a regulatory requirement.
5. Requiring fiduciary management providers to disaggregate fees for existing customers, including providing enhanced disclosure of underlying investment fees.
6. Requiring fiduciary management providers to provide more information about their fees to prospective customers, including costs relating to transition or exit.
7. Requiring fiduciary management providers to report their performance track record to prospective customers using a standardized methodology.
8. Requiring pension scheme trustees to set strategic objectives for their investment consultant to enable them to judge the quality of service.

To assist in implementing the remedies, the CMA recommends:

• An extension of the Financial Conduct Authority's regulatory perimeter to include all of the main activities of investment consultants.
• That the TPR should develop guidance to support pension scheme trustees in requesting and using the additional information they will be able to access as a result of the changes arising from the remedies.
• That the FCA maintains oversight of the transparency of asset management fee reporting alongside the industry-led Cost Transparency Initiative.
• That the TPR should be given powers to enable it to oversee the remedies imposing requirements on pension scheme trustees.

The CMA expects most of its remedies to be implemented by orders and to be in place by the end of 2019.

View the CMA's final report.

View the FCA's statement.

View details of the CMA's Provisional Decision Report.

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