Compliance

FCA Turns Its Guns On Investment Consultants, Warns About Competition

Tom Burroughes, Group Editor, London, 14 September 2017

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The FCA is pressing ahead with moves to improve competition in how investment consultants - key players in the UK's savings and retirement world - operate.

The UK’s financial regulator, fresh from chiding asset managers for not being competitive enough, has fired a warning shot at investment consultants and fiduciaries, referring the sector to the body examining potentially anti-competitive practices. The move drew broad praise today from commentators in the sector.

The Financial Conduct Authority is concerned about how trustees of pension schemes rely heavily on consultants over how to allocate assets; it is also notes there are barriers against smaller competitors breaking into the market.

“The Financial Conduct Authority has today [Wednesday] confirmed its final decision to make a Market Investigation Reference to the Competition and Markets Authority in relation to investment consultancy and fiduciary management services.  This is the first time that the FCA has made such a reference to the CMA,” the FCA said in a statement.

While not all of the issues are directly relevant to wealth managers, the fact the FCA is showing its teeth in dealing with perceived lack of competition is a potential wakeup call to the overall UK financial sector. The regulator can make a MIR if it thinks it has “reasonable grounds to suspect that any features of a financial services market prevent, restrict or distort competition”.

Last November, the FCA said it had provisionally decided to refer its concerns to the CMA, and three of the largest consultant – Aon Hewitt, Mercer and Willis Towers Watson – made undertakings to address these worries. The FCA said that while this response was welcome, it wasn’t confident the undertakings went far enough.

The move by the FCA comes on top of a sharp rap of the asset management industry’s knuckles in July this year about alleged lack of competition, a situation that it said ultimately damages the consumer. 

“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,” Christopher Woolard, executive director of strategy and competition at the FCA, said.

“Investment consultancy services play a significant role advising pension fund trustees when they are procuring asset management services. It is important that trustees can be confident they are getting good quality advice and value for money from their investment consultants,” he added.

Reaction
“We welcome the review and its focus on ensuring that competition is working effectively for end customers.  We particularly welcome the FCA's recognition of the value and importance of strategic asset allocation advice,” Dan Mikulskis, head of DB Pensions, Redington, an investment consultant, 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,” Caroline Escott, policy lead for investment and defined benefits at the Pensions and Lifetime Savings Association, said. 

“We hope that the CMA investigation can examine these issues in depth and recommend comprehensive solutions. We do however urge the CMA to be mindful of the need for any investigative measures taken to be proportionate and timely to prevent avoidable costs or uncertainty for schemes during its review,” Escott said.

 

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