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CMA publishes Issues Statement in Market Investigation into Investment Consultancy and Fiduciary Management Services

CMA publishes Issues Statement in Market Investigation into Investment Consultancy and Fiduciary Management Services
  • United Kingdom
  • Financial services and markets regulation
  • Pensions
  • Financial services - Asset managers and funds


On 21 September 2017, the Competition and Markets Authority (CMA) published its Issues Statement in Market Investigation into Investment Consultancy and Fiduciary Management Services. The Issues Statement sets out the scope of the investigation; it also outlines initial theories on what might be adversely affecting competition and identifies potential remedies.

The Issues Statement comes only a week after the decision by the Financial Conduct Authority’s (FCA) decision to refer the industry to the CMA, the first such referral by the FCA.

Interested parties are invited to submit responses to the Issues Statement by 12 October 2017.


On 14 September 2017, the FCA referred the industry to the CMA for a market investigation, citing “serious concerns” about the market. The referral comes on the back of the FCA’s long running market study into asset management, which the FCA concluded in June 2017. See our previous briefing here.

A CMA market investigation is an 18 month in-depth review of the industry, during which the CMA must assess whether there are any features of the markets have an adverse effect on competition (AECs) and, if so, what remedial action should be taken to address these.

The Issues Statement clarifies and consults on the proposed scope of the market investigation. It also sets out the CMA’s preliminary hypotheses – known as ‘theories of harm’ – as to the features of the markets that may adversely affect competition. It sets out a long list of potential remedies, some or all of which might be deployed if any AECs are found to exist.

Scope of the market investigation

The investigation will cover both investment consultancy and fiduciary management services.

The CMA proposes to focus on the provision of these services primarily to pension schemes rather than the wider cohort of institutional investors such as charities, insurance companies and endowment funds.

Initial theories of harm

1. Demand side and information issues

The CMA will consider whether difficulties in customers’ ability to assess, compare and switch investment consultants mean that consultants face less pressure to compete. The CMA notes that the FCA’s market study found that tendering and switching rates seemed to be low and that customers find it difficult to monitor, challenge and assess the quality of consultants’ advice.

The CMA will look at a wide range of issues including any differences between different types of pension scheme or trustee, the impact of trustees’ legal obligations, the role of employers, how trustees purchase services, the clarity and comparability of fees and performance information, any barriers to switching/tendering, and the capabilities and incentives of trustees and employers.

2. Conflicts of interest

The CMA will examine whether any conflicts of interest on the part of investment consultants may compromise the quality and/or value for money of services provided to their customers.

The CMA will explore whether investment consultants have incentives to steer clients to the consultants’ own in-house offerings, in particular, fiduciary management and master trusts.

The CMA will also consider how ‘outside business relationships’, whereby asset managers are also clients of investment consultants, may affect the independence of investment consultants’ advice. These other relationships include organising and hosting investment conference, data and consulting services, and direct investment advisory services.

The CMA will also probe how gifts and hospitality in the industry might affect asset manager ratings and the independence of consultants’ advice. The CMA notes that the FCA found a “strong culture” of gifts and hospitality in the sector.

3. Barriers to entry

The CMA will explore whether barriers to entry and expansion are stifling competition by preventing new entrants from exerting competitive pressure on incumbent investment consultants. In terms of barriers to entry (which the FCA did not consider to be high), the CMA plans to look at the initial costs of setting up an investment consultancy. As regards barriers to expansion, the CMA will consider if there are any regulatory barriers, brand/recognition factors, expansion costs and whether the largest existing investment consultants have other benefits which smaller suppliers cannot replicate.

Potential remedies

The CMA emphasises that it is in the “very early stage in thinking about potential remedies” and that any discussion of remedies is “purely hypothetical” at this stage. The potential remedies, which are divided into demand side/informational remedies, remedies to address conflicts of interest, and remedies to address barriers to entry, include the following:

  • Bringing investment consultancy and fiduciary management within the FCA’s regulatory perimeter
  • Requiring consultants to provide better information on fees
  • Banning certain pricing practices
  • Requiring consultants to report on pension fund returns against agreed benchmarks
  • Requiring consultants to report on the performance of asset manager recommendations
  • Requiring pension schemes and employees to provide reviews of investment consultants
  • Introducing mandatory tendering for investment consulting, fiduciary management and/or master trusts
  • Recommending aggregation/consolidation of pension trusts (noting the FCA’s existing recommendations to the Department for Work and Pensions)
  • Requiring pension schemes to have at least one professional trustee
  • Requiring consultants to give greater clarity to trustees if proposing to move them into a different arrangement such as fiduciary management
  • Prohibiting consultants from providing fiduciary management and/or master trust services
  • Requiring divestiture of investment consultancy services
  • Requiring stronger separation of different business areas
  • An FCA accreditation scheme for smaller investment consultants
  • Imposing limits on the value or type of hospitality that investment consultants can receive, or an outright ban on hospitality


This is the first market investigation carried out under the CMA’s new procedural guidance published in July 2017, which aims to streamline the CMA’s processes and ensure it is able to meet the 18 month statutory timescale. It is therefore the first time the CMA has published its initial Issues Statement within a week of the referral and identified potential remedies at such an early stage.

The CMA is at pains to stress that the consideration of remedies is hypothetical only at this stage, i.e. it does not prejudge the finding of AECs. Nonetheless any interested parties should take note. The long list of potential remedies identified by the CMA includes some highly interventionist remedies such as breaking up of businesses and price controls. It also includes various remedies that would impose obligations on pension trustees and other purchasers of the services in question.

Any interested parties should consider submitting a response to the Issues Statement. The CMA will be interested to hear not only from investment consultants, but also from other key stakeholders such as pension trustees, employers and asset managers.