17 January 2019

Written by Becky Ellis

The Competition and Markets Authority (CMA) published its final report in December 2018, following its market investigation which commenced in September 2017. This followed an initial market study by the Financial Conduct Authority (FCA) (see our article here for further details on the FCA’s study and referral to the CMA).

Investment consultancy

The CMA concluded that there was an adverse effect on competition (an AEC) in relation to investment consultancy services in the UK due to: low level of engagement by some customers; lack of clear information for customers to assess the quality of their existing investment consultant; and lack of clear and comparable information for customers to assess the value for money of alternative investment consultants. The CMA found that these features of the market make it difficult for many customers to access and assess the information needed to evaluate the quality of their existing investment consultant and identify if they would be better off using an alternative provider.

Fiduciary management

The CMA found that the following features of the fiduciary management services market in the UK led to an AEC:

  1. Firms that provide both investment consultancy and fiduciary management services often steer their advisory customers towards their fiduciary management services
  2. There are low levels of engagement by customers when first appointing fiduciary managers
  3. There is a lack of clear and comparable information for customers to assess the value for money of alternative fiduciary managers
  4. There is a lack of clear information for customers to assess the value for money of their existing fiduciary manager
  5. There are barriers to switching between fiduciary managers

The CMA found that the above features result in an incumbency advantage for firms that offer both investment consultancy and fiduciary management services and that this prevents, restricts or distorts competition at the point at which customers first move into fiduciary management. This means that some customers remain with their incumbent investment consultant for fiduciary management services even if a better deal on fiduciary management is available elsewhere which in turn reduces the incentives of the incumbent’s investment consultants to compete on the basis of fees or quality of service.

Some of the above features also reduce competition once customers have bought fiduciary management services. These features make it difficult for customers to access and assess the information needed to evaluate fees and to identify if they would be better off switching.

The CMA’s proposed remedies

When the CMA finds that a feature or combination of features in a market have an AEC, it is required to decide whether remedial action should be taken and if so, to identify effective and proportionate remedies. Following the finding of AECs in both the investment consultancy market and fiduciary management market, the CMA has chosen a package of remedies that will impact pension scheme trustees, investment consultants and fiduciary management providers, and a series of recommendations to the government and regulators.

Pension scheme trustees:

  • Will be under a duty to carry out competitive tenders before awarding a fiduciary management mandate of 20% or more of their scheme assets for the first time. If there was no competitive tender for a previous award of a mandate for this amount of scheme assets, a tender must be carried out within five years.
  • Will be required to set strategic objectives for their investment consultant so that they can judge the quality of service.

Investment consultants:

  • Investment consultancy firms that also offer fiduciary management services will be required to separate their marketing of these areas and remind pension scheme trustees of their duty to tender.
  • Will be required to report the performance of any recommended asset management products and their own investment products to an agreed set of standards where reporting is not already covered by other regulatory requirements.

Fiduciary management providers:

  • Will be prohibited from accepting a mandate from pension scheme trustees, subject to the duty to tender set out above, without confirmation that they have competitively tendered.
  • Will be required to disaggregate fees for current customers, including providing enhanced disclosure of underlying investment fees.
  • Will be required to provide more information about their fees to prospective customers, including costs relating to transition or exit.
  • Will be required to report their performance track record to prospective customers using a standardised methodology.

Government and regulators:

  • The Pensions Regulator (TPR) should provide guidance to pension schemes on running competitive tenders for fiduciary management and investment consultancy services.
  • TPR should develop guidance to support pension scheme trustees in asking for and using the enhanced information that will be available as a result of the remedies.
  • HM Treasury should pass the necessary legislation to extend the FCA’s regulatory perimeter to include all of the main activities of investment consultants.
  • The FCA should maintain oversight of the transparency of asset management fee reporting.
  • The Department for Work and Pensions should pass the necessary legislation to enable TPR to oversee the remedies which impose requirements on pension trustees.

The remedies set out above are expected to be in place by the end of 2019. The remedies will be monitored by the sectoral regulators (i.e. TPR for pension trustees and the FCA for investment consultants and fiduciary managers) who the CMA considers will be best placed to oversee the remedies as part of their ongoing sectoral regulation.


In February 2017, the three largest investment consultancy firms offered undertakings in lieu of the FCA referring the investment consultancy market to the CMA. These undertakings focused on encouraging tender regimes and better disclosure of fee and performance information, and ensuring that there were procedures in place to manage the conflict of interest inherent when a firm offered both investment consultancy and fiduciary management services; however these undertakings were rejected by the FCA.

The CMA’s remedies address similar concerns to the undertakings that were offered in 2017, and are intended to ensure that tenders take place when appointments are awarded, that there is more available information on performance and disclosure, and investment consultancy firms will not market their fiduciary management services alongside their investment consultancy services. However, the key difference with the undertakings in lieu that were offered, is that the remedies will impact market participants more widely, including pension scheme trustees and all investment consultancy firms.

If you have any questions on the issues raised in this article, please contact Chris Worrall or your usual Burges Salmon lawyer.

Key contact

Chris Worrall

Chris Worrall Partner

  • Head of Competition
  • Mergers and Acquisitions
  • Financial Services

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