"We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members. "
While pension schemes can choose from a range of different firms, the CMA has identified competition problems within both the investment consultancy and – to a greater degree – the fiduciary management markets.
It found that around half of pension schemes choose the same provider for fiduciary management that they use for investment consultancy and that their current investment consultant can steer them to do this.
This means companies which offer both services have an advantage over other firms when it comes to getting this business from existing clients.
It also found that a number of pension trustees have low levels of engagement with providers in the sector when choosing their first fiduciary manager. Only a third of trustees ask firms to compete for their business through a tender process, meaning no competitive pressure is put on their existing investment consultant or fiduciary manager to offer the best terms or highest performance.
The CMA added that pensions trustees often do not have sufficient information on the fees or quality of these services to be able to judge if they’re getting a good deal from their existing investment consultant or fiduciary manager, or if they could do better elsewhere.
The CMA has therefore proposed a number of changes, including new rules requiring pension trustees selecting their first fiduciary manager to run a competitive tender.
It also wants trustees who have already appointed a fiduciary manager without doing this to put the role out to tender within five years to increase competition in the market.
The CMA is also making recommendations for new guidance from The Pensions Regulator, which would provide trustees with more advice on how to choose and scrutinise providers, and is proposing that the government broadens the FCA’s regulatory scope to ensure greater oversight of the industry.
John Wotton, chair of the CMA’s Investment Consultants Market Investigation, said: "We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members. They may lack the information they need to compare competing offers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.
"This is an extremely important sector that influences how well millions of people’s pension savings are invested, and it’s therefore vital we take steps to make sure that competition is working properly. That’s why we’re proposing a number of important reforms to the sector, including requiring pension trustees to run a competitive tender when they choose a fiduciary manager and ensuring that trustees have much better information about fees and investment performance."
In a statement, the FCA said: "We welcome the CMA's in-depth work on competition in the market for investment consultancy and fiduciary management services. As part of our asset management market study, we referred this sector to the CMA for a detailed investigation because we had serious competition concerns.
"The CMA’s provisional findings about pension schemes trustees’ limited ability to drive competition between investment consultants and fiduciary managers are significant. These services matter because the firms involved provide advice and services to the pension schemes which so many consumers rely on. According to the CMA, investment consultants advise on, and fiduciary managers take decisions for, the investment of at least £1.6 trillion of pension scheme assets which affect millions of pension scheme members and their families.
"We agree with the CMA that it is important that the remedies address the potential harm in this sector effectively. We look forward to reviewing the CMA’s detailed findings and suggested remedies, including their recommendation to extend the FCA’s regulatory perimeter, and will continue to work closely with the CMA in the coming months as the remedies are finalised."
