Caroline Escott, Policy Lead: Investment and Stewardship, at the Pensions & Lifetime Savings Association, brings us up to date on the flagship report which will bring important changes for the investment consultancy and fiduciary management market.


In September 2017, the Competition and Markets Authority (CMA), set out to investigate how well the market for investment consultancy and fiduciary management services works, and whether it works in the best interests of pension schemes and savers. Now, nine months, eight Working Papers, one (hefty) trustee survey, and many hundreds of data requests later, the CMA has published its Provisional Decision Report (PDR). This sets out its full analysis of the sector and proposes a series of remedies to ensure both the supply and the demand sides of the market work efficiently.

The findings

The CMA undertook an extensive information, gathering exercise, getting data from investment consultants and fiduciary managers as well as engaging widely with industry representatives such as the Pensions and Lifetime Savings Association (including through speaking at our 2018 Investment Conference as well as coming in to discuss key issues with our member governance committees), trustees, scheme investment practitioners, and asset managers.

Along the way, the CMA outlined its emerging thinking and analysis to date in a series of Working Papers which provided further opportunities for comment and gave the industry a good idea of what might be coming further down the track. To anyone who was keeping track of the CMA’s publications (like yours truly), the conclusions outlined in its July PDR were therefore, mostly, unsurprising.

The CMA determined that the investment consultancy market was not highly concentrated, but that some trustees “do not have the time or skills to scrutinise their consultants”; and that there are schemes “including small and DC schemes”, which have low levels of market engagement. These findings on scheme governance echo concerns expressed by The Pensions Regulator (TPR), and others that there is a variation of skills, knowledge, and understanding across trustee boards.

The CMA stated that it had “more serious concerns” regarding the still relatively new and evolving market for fiduciary management services. Key findings included that it was hard for trustees to get the information necessary to help them make a good choice in picking or assessing a fiduciary management provider; that firms offering both investment consultancy and fiduciary management services (IC-FM firms), had an incumbency advantage; and that trustees were often not shopping around when moving into a fiduciary management arrangement.

One particular aspect of the institutional investment advice market, as highlighted by the CMA at the beginning of its investigation, was the potential for conflicts of interest surrounding the sale of an in-house master trust pension by investment consultants that provide employee benefit consultancy (EBC) services. The Working Papers had been noticeably quiet on this issue and the PDR explained the reason why: the CMA found that the “potential conflict [is] unlikely to [lead to] a competition problem… [as the] master trusts of investment consultants which also act as EBCs currently [have] only limited take up.”

The remedies

The CMA’s powers and scope on competition issues goes beyond that of the FCA, including the ability to recommend far reaching remedies such as structural reform of a given sector. For the investment consultancy/ fiduciary management markets specifically, this could have included a proposal to break up the vertically integrated IC-FM firms. However, the PDR did not go down this route, instead proposing a series of other (less radical) remedies for both investment advice service providers and their pension scheme clients.

It is important that trustees are able to compare apples with apples when making a decision, and we therefore strongly welcomed the CMA’s proposal to require better information on fees and quality

The PLSA has called for provision of clearer and more standardised information by service providers along the investment chain to their pension scheme clients for some time, not only through our responses to the CMA investigation but also our work as part of the FCA’s Institutional Disclosure Working Group (IDWG). It is important that trustees are able to compare apples with apples when making a decision, and we therefore strongly welcomed the CMA’s proposal to require better information on fees and quality from consultants. This includes a suggested requirement that fiduciary managers break down the fees for their services, and the introduction of industry performance standards.

We have also long noted the discrepancy between the level of regulation of institutional investment advice and retail investment advice. Given the fact that poor advice by consultants can have a negative impact on the retirement income of thousands of scheme members (as opposed to the relatively limited impact of poor retail investment advice), it seems anomalous that regulation of the financial advice given to individuals is so much tighter. We are therefore hopeful that the CMA proposal that the Financial Conduct Authority (FCA) has greater oversight of the consultant industry will be a positive step in correcting this anomaly.

It won’t just be investment consultants and fiduciary managers who have to comply with new requirements, but trustee boards as well.

The PLSA had been concerned that measures such as mandatory switching of (which we believed would have reduced the choice for trustees), or mandatory retendering for investment advice might have been suggested, and we welcomed the more proportionate suggestion in the PDR that trustees undertake mandatory tendering for the first move to fiduciary management, or within five years for those who had already moved to such an arrangement but did not tender.

Other demand-side remedies included new guidance from TPR on the tender process, and a requirement placed upon trustees to set their consultants strategic objectives and review performance against these objectives every few years. Most of these steps seem sensible, yet the devil is – as always – in the detail: any new requirements will impact the market and must be designed intelligently so that their implementation does not have unintended adverse consequences whilst also achieving its intended purpose.

Next steps

By the time you read this, the deadline for formal responses to the Provisional Decision (24th August) will have passed. However, attendees at our Annual Conference in Liverpool in October will also have the opportunity to hear from the CMA and feed in their views directly. The CMA will also undertake a number of evidence sessions before considering all the feedback received and publishing its Final Decision by March 2019.

It is vital that pension scheme trustees and their investment teams continue to feed in views to the investigation at what is a critical juncture. Creating a well functioning investment consultancy market is a vital step in supporting pension schemes to invest wisely and in a way which protects the value of individuals’ retirement savings.

It is vital that pension scheme trustees and their investment teams continue to feed in views to the investigation at what is a critical juncture.


Caroline Escott
Policy Lead – Pensions & Lifetime Savings Association

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