Investment consultancy and fiduciary management reforms published

The reforms include a new requirement for pension trustees to put decisions to appoint a fiduciary manager out to competitive tender; and enhanced disclosures from fiduciary managers over fees and more standardised reporting of past performance.

The proposals are contained in a final report by the CMA (440-page / 3.1MB PDF), following its market study by the CMA into the investment consultancy and fiduciary management sectors. The watchdog will consult on the detail of the new requirements next year, with the intention to introduce them later in 2019.

John Wotton, who chaired the market investigation for the CMA, said that the sector was an "extremely important" one, that "influences how well millions of people's pension savings are invested".

"It's therefore imperative we make these changes so that the sector works better for those it is meant to support - pension scheme members," he said.

Investment consultants provide advice to pension scheme trustees on how best to invest their funds, while fiduciary managers make investment decisions on behalf of scheme trustees. A number of firms provide both services.

The CMA carried out its market investigation following a referral by the Financial Conduct Authority (FCA). It found that some pension trustees had appointed the same firm to provide investment consultancy and fiduciary management services, without looking around for a better deal. Only one third of the trustees surveyed by the CMA ran a competitive tender before appointing a fiduciary manager.

Pension trustees also tended to lack sufficient information on the fees for, or quality of, their investment consultancy and fiduciary management services. The CMA was concerned that this meant that trustees were unable to properly judge if they were getting a good deal from their existing provider, or if they could do better elsewhere.

The CMA will therefore require pension trustees who wish to delegate investment decisions over more than 20% of their scheme assets to a fiduciary manager to run a competitive tender exercise, with at least three firms. Trustees who have already appointed a fiduciary manager without a tender will be required to run a tender exercise within five years. It is the CMA's view that this new requirement will increase competition.

Fiduciary managers will be required to provide more information about their fees to prospective customers, including costs relating to transition or exit; and to report on their performance track record using a standardised methodology so that prospective customers are able to properly compare the quality of the service that they provide. Fiduciary managers will also be required to provide current customers with a breakdown of their fees, including enhanced disclosure of underlying investment fees.

To support these new requirements, the CMA has made a number of recommendations for the Pensions Regulator (TPR), FCA and government. It has recommended that the government legislate to bring the main activities of investment consultants within the FCA's regulatory perimeter, and to allow TPR to enforce the new requirements on pension trustees. TPR should also develop new guidance to support trustees with the new requirements, and to allow them to make effective use of the new information to be published by fiduciary managers.