"It is a significant step for us to make this recommendation. We have serious concerns about this market and believe that the CMA is best placed to undertake this work."
The FCA has recommended that the Competition and Markets Authority launch an investigation into investment consultanty services after raising "serious concerns" about whether trustees are getting good quality advice.
The FCA has today made a Market Investigation Reference, the first time that the FCA has made such a reference to the CMA.
The regulator has the power to make a MIR when it has reasonable grounds to suspect that any features of a financial services market prevent, restrict or distort competition.
In the case of investment consultancy and fiduciary management, the FCA has noted a weak demand side with pension trustees relying heavily on investment consultants but having limited ability to assess the quality of their advice or compare services with resulting low switching rates.
It also raised concerns that the largest three firms together hold between 50-80% market share and that barriers to expansion restrict smaller, newer consultants from developing their business.
Assets affected by investment consultants’ advice are significant, with up to £1.6tn of assets affected by the advice of the twelve largest firms. The institutional investors who use investment consultancy services are mainly pension schemes but also include charities, insurance companies and endowment funds.
In the interim report on its asset management market study published in November 2016, the FCA announced it had made a provisional decision to make a MIR. In response, the three largest investment consultants - Aon Hewitt, Mercer and Willis Towers Watson - offered the FCA a package of undertakings in lieu of a reference to address its concerns.
The FCA said it was not confident the package would provide a 'comprehensive solution' and so rejected the undertakings in lieu.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: "It is a significant step for us to make this recommendation. We have serious concerns about this market and believe that the CMA is best placed to undertake this work.
"Investment consultancy services play a significant role advising pension fund trustees when they are procuring asset management services. It is important that trustees can be confident they are getting good quality advice and value for money from their investment consultants."