Investment consultants will be opened up to scrutiny after the UK financial regulator said it would press ahead with a referral of the industry to the competition watchdog.
The Financial Conduct Authority (FCA) today announced it would make a “market investigation reference” to the Competition and Markets Authority (CMA) in relation to investment consultancy and fiduciary management services.
Industry representatives have been quick to “welcome” the referral, which was floated in the interim FCA Asset Management Market Study in November 2016 and provoked consultants to propose a “package of undertakings in lieu” of a reference – but the FCA has turned this down.
It is the first time that the FCA has made such a reference to the CMA, which it has the power to do when it has “reasonable grounds to suspect that any features of a financial services market prevent, restrict or distort competition”.
The largest three firms – Willis Towers Watson, Mercer and Aon Hewit – together hold between 50-80% market share. The FCA is worried there are barriers to new entrants; conflicts of interest in business models; and that many pension scheme trustees may not be capable of assessing value for money.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “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.
Caroline Escott of the Pensions and Lifetime Savings Association (PLSA), said: “Investment consultants can play a positive role in the institutional investment chain, and many PLSA members have told us they are happy with the services offered by their investment consultants.
“Nonetheless others have expressed concerns about the potential misalignment of incentives in the sector and the FCA’s studies have highlighted competition issues on both the demand and the supply side.”
A spokeswoman for Willis Towers Watson said: “As previously stated, we look forward to working constructively with the CMA following today’s announcement from the FCA. We hope that the process will help bring clarity and consistency to an industry which has to manage potential conflicts of interest.”
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