Paul Myners has cleared the UK consultancy market of accusations of serious competition concerns, but recommended that pension funds split actuarial and investment advice contracts to bring more players into the country’s restricted advisory market.
In his government initiated report on institutional investing, Myners, chairman of UK investment house Gartmore, argues that, on the contrary, the diminutive size, profitability and resources of the current advisory market in the UK are ‘insufficient’ compared to the importance of the work carried out and the volume of assets being advised on.
“ The result, despite these firms’ best efforts – to which I pay tribute – is a narrow range of expertise and little room for specialisation,” says Myners.
Despite noting that only four main providers account for over 70% of the advice given in the UK, Myners focused on the bigger picture; pointing out that consultancy is a low margin business, which in itself is unhealthy for the pensions industry as a whole.
Myners expressed surprise at the findings of research by consultant Watson Wyatt showing average annual costs in basis points paid to each party in the investment chain.
This showed that on average 27 basis points are paid to asset managers, 15 to brokers, 3 to custodians and only 1.5 to consultants.
Myners called this “ inconsistent” with academic intelligence and an undervaluation of the importance of asset allocation advice.
Lack of consultant industry resources, he added, were also dangerous: “ It is not an appealing industry to new entrants and this is not good to see on the whole.”