The UK competition regulator’s investigation into investment consultants and fiduciary managers has slowed the uptake of fiduciary services, according to research by KPMG.

The advisory firm’s 2018 UK Fiduciary Management Survey found that 9% defined benefit (DB) schemes selected fiduciaries in the 12 months to end-June 2018.

This compared with 30% growth in the previous year, and was the lowest level KPMG had recorded during the 10 years the figures have been compiled.

The Financial Conduct Authority (FCA) referred investment consultants and fiduciary managers to the Competition and Markets Authority (CMA) last year, citing concerns of poor competition and concerns over the dominance of the biggest providers.

The CMA found that consultants that also provide fiduciary services had strategies and financial incentives to sell fiduciary management to their existing advisory clients, which hampered competition and could cause “material customer detriment”.

Anthony Webb, head of fiduciary management research at KPMG, said: “The CMA review is probably a key factor, with some pension scheme trustees adopting a ‘wait and see’ approach while the investigation into investment consultancy and fiduciary services was carried out.”

However, Webb added: “It now seems likely that UK fiduciary managers will not significantly change their investment offering to pension schemes as a consequence of the CMA review – so this year may represent a blip, rather than a signal for lower growth rates in the long term.”

The survey covered DB schemes using full or partial fiduciary management and was based on responses from 15 providers. It found that roughly 15% of pension schemes used a fiduciary manager.

Independent advice

KPMG also reported that pension scheme trustees were increasingly seeking independent advice, with oversight sought in two-thirds of new appointments, a small increase over 2017.

However, the number of schemes receiving independent advice on an ongoing basis after appointment remained low, at around one-fifth.

The CMA in its interim reports has proposed mandatory tendering for fiduciary management mandates.

Webb said: “We think more schemes could benefit by formalising the way they assess their fiduciary managers.”

Meanwhile, the survey showed there was room for improvement in engagement between fiduciary managers and trustees on environmental, social and corporate governance (ESG) issues.

While the majority of schemes (58%) claimed some ESG-related engagement with fiduciary managers, the remaining 42% had had no formal engagement on ESG over the past year.

Faye Mullen, assistant head of fiduciary management research at KPMG, said: “There is increasing attention on how ESG policies are managed within pension scheme investment strategy, including new requirements for trustees that were recently set out by the Department for Work and Pensions. Trustees, with help from their provider, will be encouraged to demonstrate greater ESG engagement in future.”