The U.K.s investment consulting industry is facing a
major investigation by the Competition and Markets Authority
due to regulatory concern about the quality of advice being
delivered to pension funds and the lack of competition.
The Financial Conduct Authority announced Thursday that for the first time
ever it has asked CMA to conduct a full investigation of the
market because it has serious concerns that
institutional investors are not receiving good advice from
consultants. The FCA estimated that assets amounting to as much
as £1.6 trillion ($2.14 trillion) are affected by the
advice of the 12 largest investment consultants.
In the U.K., consultants play a huge role in advising
pensions, insurance companies and endowments on investment
strategies and fund manager selection. The FCA has worried that
conflicts of interest have been built into their business
models and that a few firms dominate more than half of the
market. While the consulting industry has responded by offering
the FCA potential remedies, they werent enough to keep
the industry from being the target of a larger probe.
We have serious concerns about this market and believe
that the CMA is best placed to undertake this work,
Christopher Woolard, executive director of strategy and
competition at the FCA, said in the announcement. It is
important that trustees can be confident they are getting good
quality advice and value for money from their investment
The FCA outlined several areas of concern in its
announcement, saying that while pension trustees were reliant
on investment consultants, they had limited ability to assess
the quality of their advice or to compare services. The
regulator found that three firms Aon Hewitt Investment
Consulting, Mercer and Willis Towers Watson hold 56
percent to 80 percent of the advisory market and that barriers
to market entry made it difficult for smaller consultants to
develop their business.
We dont know what the CMA are going to
recommend, but it could be that the big consultancies change
their practices before the results are even announced,
said Ben Gold, head of pension investment for the north of
England at consulting firm Xafinity. Within those
businesses they may look at the profitability of the different
business lines and it is entirely possible that the firms
decide to split the business lines themselves.
Gold said the regulatory probe could lead to better
outcomes for pension schemes and more business for
mid-tier consultancies like Xafinity. The CMA said Thursday that it will conclude
its investigation into whether there are any adverse
effects on competition in the investment consulting
sector by March 2019. The regulator will consider potential
remedial action should any be found.
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The largest consultants defended their advice on Thursday,
saying they work hard to design bespoke, independent,
investment ideas for their clients and will cooperate fully
with any investigation undertaken by the CMA.
Andrew Kirton, senior partner and global chief investment
officer at Mercer, said the firm is proud of its
work in investment consultancy and fiduciary management
He said Mercer is entirely independent of any asset
manager and that its intellectually rigorous
advice is tailored to the requirement of individual
It is important that our clients are confident that
the investment consultancy market operates in their best
interests, he said. We will engage proactively and
constructively with the CMA as they undertake this fresh,
independent and evidence-based review.