FCA calls for investigation into investment consultant competition

FCA calls for investigation into investment consultant competition”

'Investment consultancy services play a significant role advising pension fund trustees when they are procuring asset management services.

Britain's markets watchdog said on Thursday it has serious concerns about the investment consultancy sector which it had asked the country's competition authorities to investigate.

In the FCA's asset management study, published in June, the regulator requested the power to regulate investment consultants due to concerns about conflicts of interest among these businesses.

Those who wanted to see the CMA get involved in the market were "especially concerned" about conflicts of interest where firms provided both advisory and fiduciary management services, the FCA said. The largest firms in the sector - Aon Hewitt, Mercer and Willis Towers Watson - hold a 50-80% market share and there are barriers to new, smaller consultants joining the industry.

The organisation said competition is not particularly being driven by customers of these services, with pension trustees "relying heavily on investment consultants but having limited ability to assess the quality of their advice or compare services", with this leading to low switching rates. Workplace pension schemes have £1.9tn of assets under management in the United Kingdom and pension schemes represent 57% of all institutional investments.

"We look forward to the outcome of the CMA investigation".

'It is a significant step for us to make this recommendation, ' said FCA director of strategy and enforcement Christopher Woolard.

"It is important that trustees can be confident they are getting good quality advice and value for money from their investment consultants", he added.

The 12 largest consultants influence investments worth up to £1.6 trillion ($2.1 trillion).

This is the first time that the FCA has made a market investigation reference to the CMA, which it can do when it has "reasonable grounds" to suspect any features of the financial services market prevent, restrict or distort competition.

This report confirmed that it was minded to refer the sector to the CMA by way of an MIR.

These three firms joined forces following the FCA's interim AMMS report in November past year, proposing a number of "undertakings in lieu" to improve standards in the sector without the need for a CMA referral.

Andy Agathangelou, chair of industry pressure group the Transparency Taskforce and former board member of fund manager trade body, the Investment Association, described the referral as "momentous".

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