CMA proposes pension investment reforms

Businessman working investment project modern office. Print publication



On 18 July 2018, the Competition and Markets Authority (“CMA”) published its provisional decision as part of its investment consultancy and fiduciary management services market investigation. The provisional decision can be found here.

Market investigations are a tool available to the CMA under the Enterprise Act 2002, which allow the CMA to look in a wide-ranging way at how well competition is working in a particular market and to take remedial action to fix any problems identified.

The CMA began its market investigation into investment consultancy and fiduciary management services on 14 September 2017. The investigation was launched pursuant to concerns expressed by the Financial Conduct Authority (“FCA”) about the competitive functioning of the asset management sector, which it examined in a market study between November 2015 and October 2016.

Summary of the provisional decision

The CMA has provisionally identified a number of issues in each of the investment consultancy and fiduciary management services market, with greater concerns in relation to the latter. The CMA has therefore proposed a package of provisional remedies intended to address the identified competition concerns.

Provisional decision

 For the purposes of its provisional decision, the CMA used the following market definitions:

  • Investment consultancy services: the provision of advice in relation to strategic asset allocation, fund/manager selection, fiduciary management and advice to employers in the United Kingdom.
  • Fiduciary management services: the provision of services to institutional investors where the provider makes and implements decisions for the investor based on the investor’s investment strategy in the United Kingdom. This service may include responsibilities for asset allocation and fund/manager selection.

In relation to the investment consultancy market, the CMA found:

  • Low levels of engagement by some customers in choosing and monitoring their provider.
  • A lack of clear information for customers to assess the quality of existing investment consultants.
  • A lack of clear and comparable information for customers to assess the value for money of alternative investment consultants.

The CMA believes that these features make it difficult for many customers to access and assess the information needed to evaluate the quality of their existing investment consultant and identify if they would be better off using an alternative provider. This in turn reduced competition between investment consultants and reduced the incentives for investment consultants to compete for customers on the basis of fees and/or quality of service.

In relation to the fiduciary management services market, the CMA found:

  • That combined offering firms were steering their advisory customers towards their own fiduciary management service.
  • Low levels of customer engagement at the point of first moving into fiduciary management.
  • A lack of clear and comparable information for customers to assess the value for money of alternative fiduciary managers.
  • A lack of clear information for customers to assess the value of their existing fiduciary manager.
  • Barriers to switching between fiduciary managers.

The CMA found that fiduciary management services have similar market problems to investment consultancy, but in some respects these problems represented more serious competition concerns.

 Proposed reforms

 To address its concerns about how each market operates, the CMA proposes to make the following changes:

  • Mandatory tendering. The introduction of mandatory tendering when pension trustees first purchase fiduciary management services and a requirement to run a competitive tender within five years if the existing fiduciary mandate was itself awarded without a competitive tender.
  • Mandatory warnings. Mandatory warnings to be given by fiduciary management firms: firms must be clear when they are marketing fiduciary management services to their existing advisory customers to highlight that this is not part of their role as trustee investment adviser.
  • Improved guidance. Greater support with running of tenders from the Pension Regulator for investment consultancy and fiduciary management customers.
  • Fee and service transparency. A requirement on fiduciary management firms to disaggregate fees for prospective customers and provide greater clarity to existing customers on costs, including exit costs.
  • Pension trustee obligations. A requirement on pension trustees to set clear objectives when they hire an investment consultant in order to judge quality of service.
  • Regulatory oversight. The CMA recommends that Government extends the FCA’s regulatory ambit to include the main activities of investment consultancy and fiduciary management providers.

What happens next?

The CMA is seeking the views of interested parties as to why these provisional findings and remedies should not become final or why they should be varied by 24 August 2018.

The CMA may choose to hold hearings in relation to its provisional decision with a number of parties with a deadline for all parties’ responses by October 2018.

The CMA is required to publish its final report by 13 March 2019.


The CMA’s provisional remedies fall short of the more severe structural changes the CMA had suggested it was considering earlier in the process (e.g. forcing the break-up of firms that provide integrated investment services). Instead, the CMA has proposed remedies that focus on empowering the demand side of each of the markets by equipping institutional investors with the information and processes needed to make the more effective investment decisions.

The consultation in relation to the provisional decision also presents the sector with another – final – opportunity to provide the CMA with thoughts and comments, in order to ensure the CMA’s final report truly reflects the views of the sector participants.

How can Walker Morris help?

Walker Morris’ Competition Team advises major UK and international clients on all aspects of competition law, including market investigations. We have successfully advised and assisted clients in respect of numerous other CMA and FCA market investigations.

If you are interested in discussing the CMA’s provisional decision further or need assistance in providing thoughts and comments to the CMA, please contact a member of the Competition Team below, or your usual contact at Walker Morris.