UK local authority pension funds have been included in new rules regarding the monitoring of investment consultants and fiduciary managers, having been exempt throughout the consultation process.

Consultancy group Hymans Robertson has called for regulators to provide clarity about requirements being placed on funds in the Local Government Pension Scheme (LGPS) system, after the Competition and Markets Authority (CMA) finalised rules aimed at improving competition and transparency earlier this month.

LGPS funds will have to set clear objectives for their consultants and any relationships with investment companies that are deemed to be fiduciary management contracts, in line with private sector schemes. The rules take effect from 10 December.

David Walker, head of LGPS investments at Hymans Robertson, said setting objectives for investment consultants should be straightforward for public sector funds, but other elements of the new rules could prove more challenging.

“The uncertainty comes with the pools, and the extent to which these might come under fiduciary definitions,” he said. “Pooling is still a work in progress. A substantial amount of assets has moved on board and the range of services they will offer is still in development.”

Walker said further clarification was required from the Pensions Regulator as to the definition of fiduciary management, to give clarity regarding how individual LGPS funds should interact with the investment pools they have created.

The CMA has defined fiduciary management as the delegation of investment decisions to third parties, and now requires these to be subject to a competitive tender. The LGPS asset pools have been set up to select asset managers but asset allocation decisions remain with individual funds.

In addition, Walker said some LGPS funds would have to reassess their relationships with consultants and independent advisers. 

“One of the potential changes that has brought uncertainty [is] the expansion of regulated advice,” he said. “There needs to be greater clarity about what would constitute regulated advice.

“LGPS funds will need to understand what relationships they have and what the separation of advice is, and make sure they are taking proper regulated advice when it’s required.”