Regulating investment consultants will not solve the problem of ensuring pension investors are not losing out as a result of “murkiness and complexity” in the asset management and investment consultant industry, according to Bart Heenk, managing director and UK head at Avida International, an independent adviser for corporate pension schemes.
Heenk was speaking to IPE about the UK Financial Conduct Authority’s (FCA) interim report on its asset-management market study, which also led the regulator to consider the role of investment consultants.
He complimented the FCA on its work, saying he was “very impressed” with the report.
“It’s very thorough, addresses the right issues, asks the right questions and doesn’t shy away from challenging the status quo,” he said.
He suggested it was regrettable that the FCA needed to step in to investigate the asset management industry and said that, ideally, pension fund users of its services would be asking the same sort of questions about fees and performance through their providers, such as investment consultants.
But this is not happening, according to Heenk.
“Investment consultants benefit from the murkiness and complexity just as much as asset managers,” he said.
The FCA, having identified problems with investment consultants and the outcomes they deliver for institutional investors, has provisionally decided to ask the UK government for powers to regulate investment consultants.
It has also called for greater disclosure of fiduciary management fees and performance, and for an investigation into competition in the institutional investment advice market.
In an initial reaction to the FCA’s report, Willis Towers Watson, one of the largest investment consultants, said it had long been in favour of “increased regulatory oversight” of the industry.
Its EMEA head of investment, Ed Francis, warned of the extra costs this could bring but argued that consultation on portfolio advice should be regulated.
Heenk said he did not think regulation would solve the problem, which is that “pension funds should be able to ask the right questions and need to arm themselves with sufficient expertise to be able to be a proper negotiating partner for the industry, which includes the asset management and the investment consultant industry.”
What is needed instead, he said, is for smaller independent consultants to “cannibalise the business models” of larger consultants or for pension funds to develop the in-house expertise to allow them “to ask the right questions and demand the right answers”.
Independent advisers like Avida, that “don’t have their own products in their toolkit”, can also help trustees, Heenk said.
The FCA said the “fragmented” demand side of institutional asset management was problematic and suggested that greater pooling of pension scheme assets could be a remedy.
Heenk said this could be beneficial as a means of increasing pension funds’ bargaining power, but he added that it was also important for pension funds to combine forces by sharing expertise, resources and experience.