Recent intervention by the Competition and Markets Authority could lead to increased competition in the market for investment professionals who provide services to pension schemes – which should be a good thing for the employers supporting those schemes.
Many occupational pension schemes use the services of investment consultants and / or fiduciary managers. Broadly, investment consultants advise pension scheme trustees on how best to invest scheme assets – and fiduciary managers make investment decisions on behalf of pension scheme trustees.
While it is the pension scheme trustees who engage these investment professionals, it is generally the employers who ultimately bear the cost.
In December 2018, the Competition and Markets Authority (the “CMA”) published the findings from its investigation into investment consultancy and fiduciary management services, and also published the remedies.
To the extent that the remedies lead to increased competition in the market, this should help to cut costs and improve investment performance for pension schemes.
- There is a lack of clear information to enable trustees to assess the quality of their existing providers.
- This leads to trustees tending to appoint (and remain with) the same provider for both services, even if a better deal may be available.
- As a result of this, there is little incentive for investment consultants and fiduciary managers to compete for business on the basis of fees and/or quality of service.
- The first time a trustee appoints a fiduciary manager in respect of more than 20% of scheme assets, it is required to run a competitive tender process.
- Where a fiduciary manager has already been appointed in respect of this level of assets without running a competitive tender process, the role will have to be put out to competitive tender within five years.
- Trustees will be required to set strategic objectives for investment consultants so that service quality can be monitored and assessed.
- Fiduciary managers will have to provide more detailed information on fees to enable an easier assessment of value for money.
In February 2019, the CMA published its consultation on the draft order to implement its proposed remedies. The draft order envisages that the requirements it imposes will fall away once equivalent requirements are brought into force by the Pensions Regulator. It is also anticipated that the Pensions Regulator will be publishing guidance to support trustees in appointing, assessing and monitoring investment consultants and fiduciary managers.
It is expected that the CMA’s findings are likely to lead to significant changes in the provision of investment consultancy services. Investment consultants and fiduciary managers will need to react quickly. Time will tell what impact these changes will have on competition, performance and pricing.