Pension schemes must run a competitive tender before choosing a fiduciary manager for more than 20 per cent of its assets, and if already delegated they must do so in the first five years, the Competition and Market Authority (CMA) has confirmed.

Publishing its final report on its Investment Consultants Market Investigation today, 12 December, the CMA also said that investment consultancy firms will have to separate their fiduciary management marketing and advice to “remind pension scheme trustees of their duty to tender”.

Furthermore, the CMA confirmed that pension scheme trustees will be required to set strategic objectives for the scheme, after the watchdog found that “below average” quality firms had higher market shares that “above average” quality firms.

In a change of tact from its provisional report, the CMA said schemes will be able to run the invitation to tender process on a closed basis, arguing that it will “achieve similar outcomes with a potentially lower cost to schemes and providers”.

Willis Towers Watson (WTW) head of investment EMEA, Ed Francis, welcomed the decision to run a closed tender.

“The revisions to the tender regime mean that it should now not act as a deterrent to the take up of fiduciary management for those schemes that will benefit from that approach,” he said.

Other remedies include The Pensions Regulator providing schemes with guidance on to pension scheme running a tender, requiring fiduciary managers to be more transparent on underlying investment fees and giving more information around their fees.

Fiduciary managers will also be required to report their performance track record while investment consultants will have to report the performance of “any recommended asset management products”.

XPS Pensions Group head of investment, Patrick McCoy, said: “The remedies will have significant consequences for the fiduciary management market which has been dominated by the big three.

“Increased competition in both markets will provide better outcomes for pension funds.”

The CMA must now make an order within six months of the publication of its final report, with most of the remedies coming into force within six months of the order being made.

Speaking in October, TPR said that it could have an order expecting to make any remedies legally required by the end of June 2019.

Throughout the process, the big three have questioned the legitimacy of the CMA’s findings, criticising the data used by regulator, particularly around the costs achieved by tendering.

Despite this, Aon head of investment for UK and Ireland, Tim Giles, said: “We welcome the CMA’s final report on the investment consultant market. Throughout the process our focus has been on our clients and on gaining the best results for all pension scheme members.

“We are already at the forefront of many steps being taken to improve transparency across all sections of the market. We firmly believe that these will ultimately improve outcomes for all pension scheme members.”

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