The Pensions Regulator (TPR) has highlighted areas of concern about fiduciary managers’ treatment of clients, as the sector comes under scrutiny from the UK’s competition regulator.

Speaking in a plenary panel at the Pensions and Lifetime Savings Association’s annual conference in Liverpool, Fred Berry, lead investment consultant at TPR, noted three common issues he saw when working with schemes that employed a fiduciary manager.

“We see more examples than we would like of fiduciary managers letting their investment colleagues off the hook more easily than they might independent managers,” said Berry.

“The contract terms for fiduciary managers are often tilted in favour of the fiduciary manager in a way we would not expect independent asset managers to get away with,” he added.

Berry said getting a lawyer to oversee any contract should help schemes and their trustees redress this balance.

Berry was sharing the panel with Alison Gold, project director at the Competition and Markets Authority, which is currently conducting an investigation into the investment consultant and fiduciary management sectors.

Gold said the CMA had found evidence that investment consultants were steering their clients towards their own fiduciary management services and that just a third of schemes were putting these selection processes to an independent tender.

“This [number] is very low,” said Gold. “And it is quite remarkable that they are not testing the market.”

Gold said the CMA expected to release its guidelines for the industry, along with its full report, by Christmas but had built in a backstop for March should more work need to be done.

In its guidelines already set out for consultation, it placed the onus on pension schemes to set objectives for their consultants and monitor them on an ongoing basis.

This objective tied in with the last of Berry’s concerns.

As fiduciary mandates were beginning to be shifted between suppliers, Berry said TPR was seeing “too many” occasions of managers having bought assets that were difficult and costly to offload when transitioning the mandate.

He said illiquid assets had been brought into portfolios with little thought for the scheme’s “end game” and the burdensome costs of sale.

Berry said “there is merit” in setting objectives for what a pension fund wanted its consultant and fiduciary manager to achieve, and although TPR preferred a principles-based approach, he “reserved the right to get a big stick” to keep the sector in line.