Key Takeaways
- • The FCA's final Asset Management Market Study recommended that the UK Treasury consider bringing investment consultancy services under its regulatory oversight, as the sector is currently self-regulated.
- • The FCA remains concerned about conflicts of interest where investment consultants offer both advisory and fiduciary management services, and will decide in September whether to refer the sector to the Competition & Markets Authority (CMA).
- • The Big Three consultancies (Aon Hewitt, Willis Towers Watson and Mercer) control up to 71% of UK investment consultancy revenues and earned at least 56% of advisory market revenues, according to the FCA.
- • The Big Three are expected to intensify efforts to avoid a CMA referral, which would trigger an 18-month competition probe.
- • Aon Hewitt says regulation represents little change for its UK business, while Mercer says it will work with the FCA and hopes its undertakings will be accepted.
Summary
The world's largest investment consultants plan to resist a full competition probe in the UK, after the Financial Conduct Authority (FCA) published the final report of its Asset Management Market Study. Aon Hewitt, Willis Towers Watson and Mercer had previously recommended their own competition measures to the regulator at the midpoint of the study, but these were judged insufficient. The FCA will now consider whether the concerns identified in the study warrant referral to the Competition & Markets Authority (CMA), a decision expected in September.
The final report recommended that HM Treasury consider bringing investment consultancy services under FCA oversight. Asset allocation advice from investment consultants and employee benefit consultants is currently self-regulated. The FCA said it had received no evidence changing its view that competition in fiduciary management "could be improved." Respondents identified vertical integration between advisory and fiduciary services as the most serious potential conflict of interest, alongside remuneration models, overly complex services, training seminars seen as sales-oriented, and the influence of gift-giving.
The Big Three dominate the market. According to the FCA, they control up to 71% of UK investment consultancy revenues and earned at least 56% of advisory market revenues combined. Other significant UK players include Barnett Waddingham, Hymans Robertson and Redington. The firms' proposed undertakings include mandatory tenders and greater disclosure of manager performance, although they have not been made public to rivals, a move that smaller competitors reportedly criticised. John Walbaum, head of investment consulting at Hymans Robertson, said many of the undertakings were "not daft" but added that "it doesn't feel right that they are dictating rules that could affect the entire industry."
Aon Hewitt said it would continue operating as usual, noting it has been regulated by the FCA since 2011 and applies those principles across its UK investment practice. Andy Cox, the firm's EMEA CEO, described the change as "little change for us." Mercer, which the article describes as the largest investment consultancy globally with $9 trillion in worldwide assets under advice, said it would work with the FCA. Andrew Kirton, Mercer's Chief Investment Officer, said the company wanted to avoid a probe that would create uncertainty for clients, adding, "If logic were to prevail, I think there is a good chance the undertakings would be accepted."
The Big Three are expected to step up efforts to avoid referral, given the cost and duration of an 18-month CMA process and concerns that heightened scrutiny could prompt regulators elsewhere to examine the sector. The FCA also noted that investors find it difficult to assess consultant advice quality, a concern given the pension funds, insurers and charities that rely on these firms to allocate trillions of dollars globally.
The final report recommended that HM Treasury consider bringing investment consultancy services under FCA oversight. Asset allocation advice from investment consultants and employee benefit consultants is currently self-regulated. The FCA said it had received no evidence changing its view that competition in fiduciary management "could be improved." Respondents identified vertical integration between advisory and fiduciary services as the most serious potential conflict of interest, alongside remuneration models, overly complex services, training seminars seen as sales-oriented, and the influence of gift-giving.
The Big Three dominate the market. According to the FCA, they control up to 71% of UK investment consultancy revenues and earned at least 56% of advisory market revenues combined. Other significant UK players include Barnett Waddingham, Hymans Robertson and Redington. The firms' proposed undertakings include mandatory tenders and greater disclosure of manager performance, although they have not been made public to rivals, a move that smaller competitors reportedly criticised. John Walbaum, head of investment consulting at Hymans Robertson, said many of the undertakings were "not daft" but added that "it doesn't feel right that they are dictating rules that could affect the entire industry."
Aon Hewitt said it would continue operating as usual, noting it has been regulated by the FCA since 2011 and applies those principles across its UK investment practice. Andy Cox, the firm's EMEA CEO, described the change as "little change for us." Mercer, which the article describes as the largest investment consultancy globally with $9 trillion in worldwide assets under advice, said it would work with the FCA. Andrew Kirton, Mercer's Chief Investment Officer, said the company wanted to avoid a probe that would create uncertainty for clients, adding, "If logic were to prevail, I think there is a good chance the undertakings would be accepted."
The Big Three are expected to step up efforts to avoid referral, given the cost and duration of an 18-month CMA process and concerns that heightened scrutiny could prompt regulators elsewhere to examine the sector. The FCA also noted that investors find it difficult to assess consultant advice quality, a concern given the pension funds, insurers and charities that rely on these firms to allocate trillions of dollars globally.
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