The Competition and Markets Authority (CMA) has issued a consultative working paper as part of its investment consultants’ market investigation. The working paper sets out the CMA’s initial analysis of trustee engagement with investment consultancy and fiduciary management. It considers the extent to which pension scheme trustees are able to assess the value for money of alternative providers, and (where necessary) to act on the outcome of that assessment. If there are barriers to trustees’ ability to assess different providers and act on this assessment, this may limit their ability to drive effective competition between providers, resulting in higher prices and/or lower quality services than would otherwise be the case.

In summary, the CMA finds that there is evidence that levels of engagement vary significantly across pension schemes. Direct contribution schemes and small schemes are less likely to engage than others, while pension schemes with certain governance structures (such as the use of investment sub-committees) are more likely to have higher levels of engagement. For fiduciary management, the CMA’s analysis of the switching process indicates that the time and costs involved in switching fiduciary management providers can be considerable. Together, this evidence raises potential concerns over the extent to which trustees are able to assess the value for money of their current provider and, in fiduciary management, switch to an alternative provider.

The CMA has identified three themes to potential remedies on which it intends to develop its thinking. These cover measures to:

  • inform trustees of switching costs;
  • empower and incentivise trustees to engage; and
  • reducing switching costs.

The CMA discusses potential remedies within each of these three themes in paragraphs 119 to 138 of the consultative report.

The deadline for comments on the consultative working paper is 26 April 2018.