You’ve got us wrong, investment consultants tell UK regulators
UK investment consultants have issued strong rebuttals to accusations of conflicts of interest and weak competition in their sector.
The biggest operators in the sector criticised some of the evidence used by the UK regulator to refer the industry to the country’s competition watchdog, even disputing the idea of a dominant ‘big three’.
The Competition and Markets Authority (CMA) last week published a number of responses to its inquiry into investment consulting and fiduciary management services. They included responses from leading providers Aon Hewitt, Willis Towers Watson (WTW) and Mercer – widely recognised as the ‘big three’ players in both areas.
Mercer urged the CMA to do its own research into competition in the consulting and fiduciary markets rather than rely on that of the Financial Conduct Authority (FCA).
The firm said in its response to the CMA: “The FCA carried out only limited work in respect of investment consulting and fiduciary management services (focusing its resources on the asset management market at the heart of its study) and we have significant reservations about the robustness of its analysis, particularly in respect of manager selection and competition among asset managers. As such, we consider that it would be inappropriate for the CMA to attempt simply to update or extend the FCA’s work.”
In its response, Aon Hewitt said it was “not accurate to characterise the industry as being comprised of a ‘big three’ with a long tail of very small providers who struggle to make headway and expand”.
In its Asset Management Market Study, published earlier this year, the FCA claimed Aon, Mercer and WTW had “at least 56%” of the revenues generated by the investment consulting sector. The regulator also found they had an even greater dominance in terms of assets under advisement, but were less dominant in terms of the number of clients each of them had.
A number of consultancy firms away from Aon, Mercer and WTW “have experienced significant growth in the past 10 years and have developed quality reputations and track records in the sector”, Aon said.
Other providers of consultancy services, either on a permanent or single project basis, also improved competition, Aon said, while WTW cited “well-established” advisers such as Hymans Robertson, LCP, Redington and Cardano as examples of healthy competition in the consulting sector.
Andrew Warwick-Thompson, former executive director of regulatory policy at the Pensions Regulator, argued that the dominance of consultants was in part due to deficiencies in trustee boards.
We should really be asking why investment consultancy has grown to be so dominant. In large measure this is due to the weakness of the trustee model. Consultants have filled the alarming skills deficit that exists on most trustee boards.— A Warwick-Thompson (@AWarwickThomps1) November 10, 2017
However, all three of Aon, WTW and Mercer claimed that the trustees they worked with were usually well-prepared and able to challenge their recommendations.
The CMA is currently gathering information through hearings, written submissions and industry surveys. It plans to issue “working papers” in the next few months.
The deadline for all responses to the inquiry is currently set at June 2018, with a provisional decision expected by July. The statutory deadline for the inquiry is March 2019.