UK watchdog to investigate advice given by consultants to pension schemes

BRITAIN'S competitions watchdog will look into the advice given by consultants to pension schemes and other institutions managing more than £1.6 trillion of funds, to see if there are conflicts of interest.

Library image of the skyline of the City of London Photo: Chris Radburn/PA Wire
Library image of the skyline of the City of London Photo: Chris Radburn/PA Wire

The Competition and Markets Authority (CMA) will assess whether investment consultants offer a poor level of service and whether difficulties comparing and switching consultants provide little incentive for them to compete for customers.

In addition, it will investigate if there are barriers to entry into the investment consultancy sector, the CMA said in a statement, which provided more detail on the probe it launched last week.

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The CMA’s investigation follows a referral from the Financial Conduct Authority, as part of the financial watchdog’s broader effort to improve value for money and transparency in the asset management industry.

In a statement, the CMA said: “We will welcome views on whether the correct issues have been identified to date and whether other issues should also be investigated, as well as views on potential remedies.”

The CMA probe will be chaired by John Wotton, one of the CMA’s designated inquiry chairs.

Mr Wotton said: “It is extremely important that the investment consultancy sector works effectively for its clients, which include many of the UK’s biggest pension funds, and we want to ensure we are looking at the right issues.

“That is why we are urging people to get in touch if they have any evidence to share.”

The other panel members are Lesley Ainsworth, Bob Spedding and Tim Tutton.

All the appointees are chosen from the CMA’s expert independent panel members, who come from a variety of backgrounds, including economics, law, accountancy and business, the CMA statement added.

Earlier this month, the FCA referred the sector to the CMA after highlighting several issues. It is concerned that pension trustees relying on investment consultants have limited ability to assess the quality of advice or compare services, and pointed to high levels of “concentration” with the largest three firms holding 50 per cent to 80 per cent market share.

The FCA also said there are barriers to expansion which restrict smaller, newer consultants from developing their business, while the number of vertically integrated business models can create conflicts of interest.

Christopher Woolard, executive director of strategy and competition at the FCA, said earlier this month: “It is a significant step for us to make this recommendation.

“We have serious concerns about this market and believe that the CMA is best placed to undertake this work. Investment consultancy services play a significant role advising pension fund trustees when they are procuring asset management services.

He added: “It is important that trustees can be confident they are getting good quality advice and value for money from their investment consultants.”

In a statement, Willis Towers Watson, which is one of the biggest firms in the sector, said: “We hope that the process will help bring clarity and consistency to an industry which has to manage potential conflicts of interest.”

The FCA said it will complete the investigation by March 2019.

The CMA is the UK’s primary competition and consumer authority.

It is an independent non-ministerial Government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law.

The Competition and Markets Authority (CMA) has published details on the areas that it proposes to examine as part of its investigation into investment consultancy.

The Financial Conduct Authority (FCA) announced its decision to refer to the Competition and Markets Authority (CMA) for an in-depth market investigation last week.

Submissions are invited in writing by Thursday October 12 2017 either by email to [email protected] or to: Project Manager, Investment Consultancy Market Investigation, Competition and Markets Authority, Victoria House, Southampton Row, London WC1B 4AD