Key Takeaways
- • The UK Competition and Markets Authority (CMA) declined to order a break-up of the investment consultancy market, which is dominated by Mercer, Willis Towers Watson and Aon, citing a combined market share below 50% and no significant barriers to entry.
- • The CMA proposed mandatory competitive tenders for pension trustees appointing their first fiduciary manager, with existing appointments made without a tender required to be put out to tender within five years.
- • Fiduciary managers would be required to disclose fees and past performance for other clients so trustees can make meaningful comparisons between providers.
- • The CMA recommended new Pensions Regulator guidance for trustees and greater Financial Conduct Authority (FCA) oversight of the sector, which influences retirement savings for millions of UK households.
- • The CMA found around half of pension schemes use the same provider for fiduciary management as for investment consultancy, and only a third of trustees require firms to compete through a tender.
Summary
The UK's Competition and Markets Authority has outlined a package of proposals addressing competition in investment advice to pension schemes, a sector serving the UK's £1.6 trillion pension fund industry. According to the CMA, the market is dominated by Mercer, Willis Towers Watson and Aon. Despite concerns raised after the Financial Conduct Authority flagged issues, the regulator stopped short of demanding a break-up of the Big Three, citing their combined market share below 50% and the absence of significant barriers to entry for rivals. The CMA said investment consultants and fiduciary managers influence how retirement savings for more than half of UK households are invested, and that it was vital competition function properly in the sector. The regulator has been probing the sector since September 2017.
The proposed remedies centre on procurement discipline and transparency. Trustees appointing a fiduciary manager for the first time would be required to run a compulsory competitive tender, and schemes that have already made appointments without tendering would have five years to put those contracts out to tender. Fiduciary managers would also need to provide clear information on fees and on how they have performed for other clients, giving trustees the data needed to compare providers. The CMA is recommending new guidance from the Pensions Regulator on how trustees should select and scrutinise providers, and wants the FCA to have greater oversight of the industry.
The CMA's findings point to weak competitive pressure in the market. Around half of pension schemes choose the same provider for fiduciary management that they use for investment consultancy, a arrangement the regulator said gives incumbents a significant advantage. Only a third of trustees ask firms to compete for their business through a tender process. John Wotton, chairman of the CMA investigation, said the regulator was concerned that schemes were not putting pressure on the market to secure best value for members, and could be retaining existing consultants or fiduciary managers when better options were available.
Industry reaction was broadly supportive. The Society of Pension Professionals said the CMA had "clearly done its homework," and John Nestor of the SPP said the group embraced the recommendations as pragmatic and well considered. Lesley Carline, president of the Pensions Management Institute, said mandatory tendering would require participants to behave in a more open and competitive manner, which she said would serve the interests of schemes and their members.
The proposed remedies centre on procurement discipline and transparency. Trustees appointing a fiduciary manager for the first time would be required to run a compulsory competitive tender, and schemes that have already made appointments without tendering would have five years to put those contracts out to tender. Fiduciary managers would also need to provide clear information on fees and on how they have performed for other clients, giving trustees the data needed to compare providers. The CMA is recommending new guidance from the Pensions Regulator on how trustees should select and scrutinise providers, and wants the FCA to have greater oversight of the industry.
The CMA's findings point to weak competitive pressure in the market. Around half of pension schemes choose the same provider for fiduciary management that they use for investment consultancy, a arrangement the regulator said gives incumbents a significant advantage. Only a third of trustees ask firms to compete for their business through a tender process. John Wotton, chairman of the CMA investigation, said the regulator was concerned that schemes were not putting pressure on the market to secure best value for members, and could be retaining existing consultants or fiduciary managers when better options were available.
Industry reaction was broadly supportive. The Society of Pension Professionals said the CMA had "clearly done its homework," and John Nestor of the SPP said the group embraced the recommendations as pragmatic and well considered. Lesley Carline, president of the Pensions Management Institute, said mandatory tendering would require participants to behave in a more open and competitive manner, which she said would serve the interests of schemes and their members.
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