‘Cosy’ pension consultants facing shake-up
PENSION investment consultants will have to work harder to win contracts following concerns that those saving for retirement are getting a raw deal due to conflicts of interest.
The Competition and Markets Authority (CMA), which has been investigating the market since September, has issued tough new rules for the sector but stopped short of ordering a break up of the three powerful consultants Mercer, Aon Hewitt and Willis Towers Watson.
It found that around half of pension schemes choose the same provider to control their assets, under a model called fiduciary management, as well as seek advice on areas such as investment strategy and asset allocation.
As a result it has proposed that pension trustees run a competitive tender for a new fiduciary manager every five years. It has also urged fiduciary management firms to provide clearer information on fees and performance so that pension trustees can make more informed decisions.
Keith Hiscock, the CEO of consultancy Hardman & Co, said: “Trustees are going to need to ensure someone among them has the expertise to make a considered choice – it certainly looks as though the cosy days for investment consultants could be over.”
Investment consultants such as Mercer, Aon Hewitt and Willis Towers Watson, which control around half of the market, manage £1.6 trillion worth of pension assets on behalf of UK savers. The sector is highly concentrated, with 10 firms dominating 80pc of it.
A person close to the process said the watchdog decided against a split because the problems identified were not deemed as structural.
The CMA said it found a number of “competition problems” during its investigation. Its concerns included pensions trustees not having enough information to judge if they could get a better deal elsewhere.
“We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members,” said John Wotton, who chaired the investigation. “This is an extremely important sector that influences how well millions of people’s pension savings are invested, and it’s therefore vital we take steps to make sure that competition is working properly.”
As the sector is largely unregulated, the CMA has proposed that the Government broaden the regulatory scope of the Financial Conduct Authority (FCA) so that it has oversight of the industry.
“I certainly think it’s right that the FCA should have regulatory oversight,” said Mr Hiscock. “However, there’s still the danger that a pension fund ends up staying in the ‘club’ and just moves between the big three every five years.”