On 12 December 2018, the Competition and Markets Authority (CMA) published its final report following its investigation into investment consultancy and fiduciary management services. The CMA carried out this investigation following a reference from the FCA in September 2017 at the conclusion of its Asset Management Market Study (our blog on the study is here).

The CMA’s investigation covered investment consultancy and fiduciary management as defined in the terms of reference:

• investment consultancy services – the provision of advice in relation to strategic asset allocation, manager selection, fiduciary management, and to employers in the UK; and
• fiduciary management services – the provision of a service to institutional investors where the provider makes and implements decisions for the investor based on the investor’s investment strategy in the UK. The service may include responsibility for all or some of the investor’s assets. The service may include, but is not limited to, responsibility for asset allocation and fund/manager selection.

In summary the report’s key findings include:

• in the investment consultancy market, there is a low level of engagement by some customers in choosing and monitoring their provider. It is also difficult for customers to access and assess the information needed to evaluate the quality of their existing investment consultant and to identify if they would be better off using an alternative provider; and
• in the fiduciary management market, firms which provide both investment consultancy and fiduciary management have an incumbency advantage. This derives from low customer engagement at the point of first moving into the service, investment consultants steering their advisory customers towards their own fiduciary management service and the fact that prospective customers do not have access to comparable information on providers’ historic performance.

The remedies that the CMA propose include:

• the introduction of mandatory tendering when pension trustees first purchase fiduciary management services and a requirement to run a competitive tender within five years if a fiduciary management mandate was awarded without one;
• a requirement on investment consultants to separate marketing of their fiduciary management service from their investment advice and to inform customers of their duty to tender in most cases before buying fiduciary management;
• for The Pensions Regulator to give greater support for pension trustees when running tenders for investment consultancy and fiduciary management services and guidance for pension trustees to support our other remedies;
• requirements on fiduciary management firms to provide better and more comparable information on fees and performance for prospective customers and on fees for existing customers;
• a requirement for pension trustees to set objectives for their investment consultant, in order to assess the quality of investment advice they receive; and
• a requirement on investment consultancy and fiduciary management providers to report performance of any recommended asset management products or funds using basic minimum standards.

The CMA is also making recommendations to enable The Pensions Regulator to oversee the remedies on pension scheme trustees and to extend the FCA’s regulatory perimeter to include all of the main activities of investment consultants.

The FCA has published a response to the CMA’s final report on its investigation of investment consultancy and fiduciary management services. Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said:

‘We welcome the CMA’s in-depth analysis of both investment consultancy and fiduciary management services and support the package of remedies proposed. It is essential that competition works well as these services have a significant impact on the retirement outcomes of millions of pension savers. We will continue to work closely with the CMA, HM Treasury and The Pensions Regulator to implement the CMA’s remedy package and take forward the recommendations in its report ’