CMA to push for pension management reform

The Competition and Markets Authority (CMA) has announced a range of reforms to the investment consultancy sector, following a market investigation undertaken at the request of the Financial Conduct Authority (FCA)

The investigation found competition problems within both the investment consultancy and fiduciary management markets, which manage half of all UK household’s retirement savings and advise on pension schemes cumulatively worth £1.6 trillion.

It concluded that some pension trustees ‘will choose their existing investment consultant to be their fiduciary manager even if a better deal may be available elsewhere, with only a third of pension trustees asking fiduciary managers to compete for their business through a tender’.

According to the CMA’s findings, many pension trustees do not have ‘sufficient information on the fees or quality of investment consultancy’ and this makes them less able to judge whether they are getting a sufficiently good deal from their existing provider. Ultimately, the investigation concluded that these and other factors affect ‘pension trustees’ ability to effectively compare all their options and reduce providers’ incentives to compete’, resulting in a worse deal for trustees and the recipients of the pensions that they manage.

The CMA will now ‘require a number of changes to these markets’ to tackle its concerns, including requiring that pension trustees ‘who wish to delegate investment decisions for more than 20% of their scheme assets to a fiduciary manager’ will have to run a competitive tender involving at least three firms. Trustees who previously appointed managers without a tender process will now have to re-tender their services within five years.

It will also be necessary for fiduciary management firms to provide clear information on fees and use a standardised approach to explaining how they have performed for other clients, in order to give trustees a clearer view of their efficacy.

John Wotton, chair of the CMA’s investment consultants market investigation, said: ‘This is an extremely important sector that influences how well millions of people’s pension savings are invested, yet we have found that many pension trustees may not be getting the best value for money for their members. Some lack the information they need to compare providers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.

‘It is therefore imperative we make these changes so that the sector works better for those it is meant to support – pension scheme members.’

Report by James Bunney

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