UK’s FSA warns on pension consultant conflicts
UK – The UK’s Financial Services Authority today warned consultants, asset managers and pension fund trustees to guard against potential conflicts of interest in a highly concentrated consultant industry.
The financial watchdog’s ‘Financial Risk Outlook 2006’ also raised concerns about over-dependence by pension fund trustees on the advice, skill and integrity of “a small number of independent actuarial consultants”.
“There are concerns of potential conflicts of interest between pension fund consultants that offer services to both pension funds and asset managers,” said the FSA report.
FSA concerns were heightened by findings last year by Pension Advisor Review – an independent professional service firm - stating that only three firms advised 75% of FTSE 350 pension schemes.
In October 2005, PAR stated that the “big three” firms – Watson Wyatt, Mercer and Hewitt – dominated the UK corporate pension consulting market. These firms also advised 85% of FTSE 100 pension funds.
“Consultants, fund managers and trustees will all need to be alert to potential conflicts of interest,” the FSA said.
The FSA declined to comment on what measures industry players should take to prevent a conflict of interests.
“We are not an economic regulator and it is not be our role to ‘deconcentrate’ the industry. However, we have identified this issue as a potential risk to market confidence, one of our statutory objectives,” said an FSA spokesperson.
The FSA also told IPE it had no plans to investigate the matter.
The spokesperson said: “In drawing the industry's attention to the issue, we hope that asset managers, pension funds and consultants will ensure that their potential conflicts of interest are managed in a robust manner.”
Neither the National Association of Pensions Funds, nor the Society of Pension Consultants responded to requests for comment.
The FSA also stated it expected overall hedge fund inflows over 2005 to halve against inflows in 2004. This was due to, amongst others, declining overall performance and credit rating downgrades of Ford and General Motors, which affected market and investor sentiment for hedge funds.
In other news, the FSA today announced the retirement of director of major retail groups and financial stability sector, Oliver Page at the end of April. He will be replaced by retail director David Strachan.