CMA finds ‘limited’ information on fees in investment consultant inquiry

The Competition and Markets Authority has published a working paper on its investigation into investment consultants’ fees and quality, finding that information on fees for trustees is “limited”.

The update from the CMA follows on from the initial referral in September 2017, when the Financial Conduct Authority referred the investment consultancy market to the Authority for further investigation using a Market Investigation Reference.

From its initial findings, the CMA said that information for defined benefit schemes on third party fees is limited in both the fiduciary management and advisory areas. It said this was particularly notable within fiduciary management, as trustees do not typically receive information directly from underlying manages.

On the other hand, defined contribution schemes receive regular information on third party fees due to regulatory requirements, including annual value for members’ assessments.

“We believe it is important for trustees to have clear and accurate information on the fees that they pay throughout the value chain, and from the documents we have reviewed, fee transparency (particularly third party fees) is in general below the standards which ought to be achieved through effective competition,” the CMA said.

Of its emerging findings, the Authority said that evidence reviewed so far indicates that competitive processes are not providing customers with the necessary information to judge the value for money of investment consultants and fiduciary managers.

“The potential competition concern with this is that customers are not well-equipped to choose, and subsequently monitor the performance of, their provider and in turn to drive competition between investment consultants, and between fiduciary managers.”

It has proposed some potential remedies to the findings, in order to empower trustees to request better information, and to encourage firms to provide better, comparable information. These include guidance and off-the-shelf materials for running better tenders for trustees. For example, template documents including standardised fee or performance schedules and guidance on how to assess responses and requesting relevant metrics.

For companies, it suggests a range of things such as offering standardised information for prospective clients, better fee information, and standardised performance metrics, along with stronger service quality metrics. The CMA noted that no final decisions have been made at this stage on whether there are any potential adverse effects on completion, or on potential remedies.

Commenting on the paper, Pensions and Lifetime Savings Association policy lead Caroline Escott noted that workplace pension schemes have £2.2tn of assets under management in the UK and millions of savers rely upon these investments for a good income in retirement.

“Both defined benefit and defined contribution schemes are important customers for investment consultants, including fiduciary management; as good quality investment advice on areas such as asset allocation and manager selection can have a significant impact on both investment returns and the value of savers’ capital, it is vital that this market works effectively.

“Transparency is a cornerstone of any well-functioning market and we therefore welcome the CMA’s decision to focus on the quality of the fee and performance information provided to trustees. Trustees need to have access to data, which is consistent, timely and comparable so they are better able to assess the quality and value for money they receive from their investment advisers.

“The PLSA has long campaigned for improved transparency and worked to support better pension fund governance, including our work as part of the FCA’s Institutional Disclosure Working Group. We look forward to consulting with a broad range of our members to feed in their views to the CMA’s work in this area and ensure a market that works in the best interests of pension savers.”

The CMA is accepting responses to the working paper until 22 March 2018, which can be sent to The full working paper can be viewed here.

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