UK’s in­vest­ment con­sul­tants face CMA review over ‘ma­jor con­cerns’

The Daily Telegraph - Business - - Business - By

Lucy Burton UK COM­PE­TI­TION au­thor­i­ties are to carry out a full in­ves­ti­ga­tion of the £1.6 tril­lion in­vest­ment con­sul­tant in­dus­try af­ter the City watch­dog voiced “se­ri­ous con­cerns” about the pro­fes­sion.

It is the first time the Fi­nan­cial Con­duct Au­thor­ity (FCA) has re­ferred any com­pany or in­dus­try to the Com­pe­ti­tion and Mar­kets Au­thor­ity, and the move threat­ens ma­jor change to an in­dus­try which un­til now has man­aged to avoid the gaze of UK reg­u­la­tors.

In its list of con­cerns, the FCA flagged the high level of con­cen­tra­tion held by the sec­tor’s three big­gest play­ers – Mercer, Aon He­witt and Wil­lis Tow­ers Wat­son – which to­gether ac­count for up to 80pc of the mar­ket. It also pointed to a lack of trans­parency, bar­ri­ers to ex­pan­sion for smaller play­ers and con­flicts of in­ter­est.

In­vest­ment con­sul­tants play a cru­cial role in how and where UK pen­sion funds in­vest their money, with £1.6 tril­lion of as­sets in­flu­enced by the ad­vice of the sec­tor’s 12 largest schemes.

The three dom­i­nant play­ers tried to avoid a full-blown com­pe­ti­tion probe into the sec­tor ear­lier this year by send­ing a pack­age of reme­dies to the FCA aimed at ad­dress­ing its con­cerns, but the watch­dog warned in June it was likely to re­ject the pro­pos­als.

“Once the horns of the com­pli­ance peo­ple get stuck into you, they’re never go­ing to let go – they just get deeper and deeper,” Keith His­cock, the chief ex­ec­u­tive of cap­i­tal mar­kets con­sul­tancy Hard­man & Co, warned at the time.

The watch­dog could de­cide to split di­vi­sions up, for ex­am­ple, given the FCA has voiced con­cerns over the fact con­sul­tants are ad­vis­ing trustees while in­creas­ingly of­fer­ing as­set ser­vices them­selves.

Christo­pher Woolard, the FCA’s ex­ec­u­tive di­rec­tor of strat­egy and com­pe­ti­tion, de­scribed it as a “sig­nif­i­cant” step for the City watch­dog, which can re­fer firms for a com­pe­ti­tion probe when it sus­pects the sec­tor is pre­vent­ing or dis­tort­ing com­pe­ti­tion.

“We have se­ri­ous con­cerns about this mar­ket and be­lieve that the CMA is best placed to un­der­take this work,” he said. “In­vest­ment con­sul­tancy ser­vices play a sig­nif­i­cant role ad­vis­ing pen­sion fund trustees when they are procur­ing as­set man­age­ment ser­vices.”

The move comes months af­ter the FCA con­cluded a near two-year in­ves­ti­ga­tion into the as­set man­age­ment man­age­ment

‘Once the horns of the com­pli­ance peo­ple get stuck into you, they’re never go­ing to let go, they just get deeper’

in­dus­try, a sec­tor which around three in four house­holds rely on to man­age their pen­sions. It urged the Gov­ern­ment to give it reg­u­la­tory over­sight of in­vest­ment con­sul­tants in the re­port.

Aon He­witt and Wil­lis Tow­ers Wat­son of­fered up­beat re­sponses to the probe, with the for­mer not­ing “many of the po­ten­tial reme­dies out­lined are in keep­ing with the ini­tia­tives we have pre­vi­ously sug­gested” and the lat­ter say­ing “we hope that the process will help bring clar­ity and con­sis­tency”.

Smaller play­ers wel­comed the in­ves­ti­ga­tion. Pa­trick Cun­ning­ham, the co-head of clients at Car­dano, said he hoped it would force providers to in­crease “dis­clo­sure around per­for­mance and value for money.”

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