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