The UK’s pension scheme trade body has voiced support for the regulator’s push for a competition review of the investment consulting sector.
The Pensions and Lifetime Savings Association (PLSA) said today it supported the Financial Conduct Authority’s (FCA) plan to refer the investment consulting sector to the Competition and Markets Authority (CMA).
As part of the FCA’s asset managment market study, the regulator said it wanted to to investigate the dominance of Willis Towers Watson, Mercer, and Aon Hewitt within investment consulting.
In February the three firms submitted “undertakings in lieu” (UIL) to the regulator outlining potential changes and guidelines, but the FCA said it was minded to reject them and press on with the CMA referral.
Caroline Escott, investment and defined benefit policy lead at the PLSA, said the UIL contained “insufficient market coverage or detail”, despite “many welcome commitments” to addressing the FCA’s concerns.
“The FCA identified issues on both the demand- and the supply- side of what is a complex and evolving market,” she said. “A CMA investigation could probe competition issues in greater depth and recommend far-reaching solutions. We would therefore support a referral to the CMA and hope such a step would ensure a market which works in the best interests of pension schemes and their members.”
Escott said some PLSA members had “consistently expressed their concerns about the potential misalignment of incentives” in the investment consulting sector, but acknowledged that some members were happy with the services provided.
Separately, a survey carried out by fiduciary manager SEI claimed that more than half of pension schemes planned to “re-evaluate” their relationships with advisers following the asset management market study.
SEI polled 35 pension trustees outside of its client base, representing £42bn of assets. The majority (87%) said they would review their investment consultant in the next two years, while 60% they would look into alternative models outside of traditional investment consulting.
Smaller consultants hunt for market share
Smaller consultancy groups also supported the FCA’s stance, according to consultation responses published today.
Punter Southall, which advises on roughly £8bn of pension assets, said “several” of the UIL proposals put forward by Mercer, Willis Towers Watson and Aon Hewitt were positive. However, it also argued against the regulator allowing “the future direction, structure and regulation of the investment consultancy industry to be driven by just three of its participants”.
Danny Vassiliades, managing director at the firm, told IPE: “The concentration of assets with a small number of advisers can have a market impact, if there is lots of money going towards one product or asset class. Consultants like us want more competition because we would expect to have a bigger market share, but there are bigger issues to do with investment consultants and their market impact.”
Fellow consultancy firm Redington has been a dissenting voice, claiming that a CMA review was unnecessary. It has cited its own rapid growth in the past 11 years as proof that barriers to entry were not significant.
Vassiliades agreed that organic growth was possible – Punter Southall grew 40% last year, he said – but “that doesn’t mean to say the market is working well”.
Cardano, the investment consultant and fiduciary manager, also supported the CMA referral.
Richard Dowell, co-head of clients, said: “The FCA’s asset management market [study] has made a significant contribution to our understanding of what works and what doesn’t in the market. We welcome the conclusions of the study, but believe more work needs to be done across different government agencies to create a vibrant and competitive market that works in the interests of defined benefit pension schemes and their members.
“With this in mind, we agree that the UIL presented by the three largest providers should be rejected, and a market investigation reference should be made to the CMA.”
The FCA’s board will make the final decision to refer the industry to the CMA in September.