UK Financial Conduct Authority Makes Market Investigation Reference for Investment Consultancy and Fiduciary Management Services

The Financial Conduct Authority has made a market investigation reference to the Competition and Markets Authority in relation to investment consultancy and fiduciary management services. The institutional investors who use investment consultancy services are mainly pension schemes but also include charities, insurance companies and endowment funds.
 
The reference follows the market study into the asset management sector conducted by the FCA,. examining whether competition was working effectively in a way that enabled both retail and institutional investors purchasing asset management services to get value for money. The FCA issued its interim report on its asset management market study in November 2016 and announced that it had provisionally decided to make a market investigation reference, due to concerns that features  of investment consultancy and fiduciary management services have the potential to  prevent, restrict or distort competition. The FCA was not confident that a package of undertakings-in-lieu presented by the three largest investment consultants would provide a comprehensive solution to the adverse effects on competition it had identified and, accordingly, it indicated at the time of publication of the final report of its asset management market study (in July 2017) that it was minded to reject the package. The FCA has now done so following further consultation.
 
Investment consultancy and fiduciary management services will now be investigated by the Competition and Markets Authority. The particular features of these services identified as potentially adverse to competition are: (i) the weak demand side, with pension trustees relying heavily on investment consultants but having limited ability to assess the quality of their advice or compare services, resulting in low switching rates; (ii) relatively high levels of concentration and relatively stable market shares with the largest three firms together holding between 50 to 80% market share; (iii) barriers to expansion restricting smaller, newer consultants from developing their business; and (iv) vertically integrated business models creating conflicts of interest.
 

View the FCA Final Decision.
 

View the FCA Press Release.