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Consultants enquiry: Industry pushes back at CMA proposals [updated]

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Fifteen companies and trade bodies have responded publicly to the Competition and Markets Authority’s (CMA) opening consultation regarding its enquiry into consultants and fiduciary managers.

They variously argued for regular tendering of contracts, better and broader disclosure of fees and performance, and even the full separation of fiduciary and investment consulting services.

However, respondents also laid out a range of difficulties that they predicted the enquiry would face if taking a simplistic approach to any of these issues.

Among the groups responding were JLT Employee Benefits (which provides both investment consulting and fiduciary management services), SEI, BlackRock, Schroders, Legal & General, the Pensions and Lifetime Savings Association , the Society of Pension Professionals, and the Investment Association.

The CMA’s full Statement of Issues paper was released in September and is available here .

Conflicts of interest

“We have concerns about conflicts of interest in fiduciary management, which is increasingly offered by investment consultants and fund managers. These issues are exacerbated because investors cannot assess whether the advice they receive is in their best interests.”

– FCA’s Asset Management Market Study

Asset management trade body the Investment Association (IA) claimed that moving from an advice-based relationship with a consultant to an implementation-based one was “the most serious potential conflict of interest”.

Fiduciary management, the IA claimed, was “dominated” by investment consultants that had won business without a competitive tender process.

Opinion was split among the respondents as to whether there should be stronger rules around providers offering both investment advice and implementation – one of the main reasons for the Financial Conduct Authority’s (FCA) initial involvement in the sector.

Jude Bennett, BBS

Jude Bennett, BBS

“While there are arguments that can be used to support investment consultants providing such services, on balance we would support the separation of consultancy and what are de facto asset management services,” said Jude Bennett, director at BBS Consultants & Actuaries.

He added that fiduciary services could be reclassified as a product that could not be recommended by the same firm offering the service.

SEI, a fiduciary provider, has long supported such a split and used its response to the CMA’s consultation to do so again. The “incumbency advantage” enjoyed by the “big three” investment consultants of Mercer, Aon Hewitt and Willis Towers Watson was “something that SEI has had to work very hard to overcome”, the company said.

However, JLT Employee Benefits’ chief actuary Phil Wadsworth warned splitting up businesses would mean “wholesale upheaval” with clients ultimately losing out. Instead, JLT supported a principles-based approach to ensure the separation of business areas within companies.

The IA also voiced its concern that investment consultants could have an unfair competitive advantage given their access to large amounts of data on products and charges. This data could potentially be used to position consultants’ own products favourably in the market, the association claimed.

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