Pension trustees in the UK will have to run compulsory public tenders when appointing their first fiduciary manager, the UK’s Competition and Markets Authority (CMA) has proposed in a provisional report on the investment consultancy sector published today.
The report, which identifies a number of competition concerns in the sector which advises pension funds worth £1.6 trillion (€1.8 trillion), also calls for trustees who have not previously run a tender to do so within five years.
The CMA says that the proposals would “increase competition in the market and reduce the competitive advantage held by the incumbent investment consultant when it comes to getting new business”.
Fiduciary management firms will also have to provide clearer information on fees and how they have performed, the report says.
John Wotton, chair of the CMA’s investment consultants market investigation, said: “We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members.
“They may lack the information they need to compare competing offers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.”
Despite the CMA’s criticism there is likely to be relief in the industry that the report has not, as some feared, recommended any break-up of the industry which in the UK is dominated by three players: Aon Hewitt, Mercer and Willis Towers Watson.
The CMA’s investigation was launched last September at the request of the Financial Conduct Authority.
The watchdog’s recommendations have been welcomed by David Curtis, head of UK and Ireland institutional business at Goldman Sachs Asset Management who said they would bring the sector closer to the standards of transparency already required of asset managers.
“The enhanced governance model that fiduciary management provides enables trustees to concentrate on the strategic decisions that are critical to pension schemes’ long-term success,” he said.
Ed Francis, head of Investment for Emea at Willis Towers Watson, said that the requirement for a competitive tender for the appointment of a fiduciary manager was sensible.
“However, we will urge the CMA to consider the proportionality and cost to schemes of a mandatory tendering requirement, particularly for smaller pension schemes, and stand ready to work with the Pensions Regulator in developing support for such schemes,” he said.
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