The FCA announced last week that it was referring the issue to the Competition and Markets Authority (CMA) over concerns about lack of competition among investment consultants who work with pension trustees who ultimately make recommendations on investing billions of pounds in assets.
The CMA says its investigation will covers investment consultancy services which provide advice to institutional investors (mainly pension funds) and employers on their pension schemes; and fiduciary management services, where the provider makes and implements decisions for the investor (for example, to select a fund in which to invest).
The CMA is now carrying out a “thorough and independent investigation”, it says, to see if there are any market features which prevent, restrict or distort competition. If it does find competition concerns, the CMA will decide whether to act and what action is needed to resolve them.
The CMA will look at these areas:
• whether difficulties in customers’ ability to assess, compare and switch investment consultants mean investment consultants have little incentive to compete for customers
• whether conflicts of interest on the part of investment consultants reduce the quality and/or value for money of services provided to customers
• whether barriers to entry and expansion mean there are fewer challengers to put pressure on the established investment consultants to be competitive – which leads to worse outcomes for customers
The CMA says it 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 has appointed an investigation group which will act as the decision maker in the case. This will be chaired by John Wotton, one of the CMA’s designated inquiry chairs. 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.
John Wotton, chair of the Investigation Group, 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 or views about whether these are the correct areas for us to be investigating.”