62% of schemes and sponsors say CMA could go further

In July, the CMA proposed a number of reforms to the investment consultancy and fiduciary management sector in order to address competition concerns.

Should the CMA 'go a bit further'?

But a survey of 267 pension scheme trustees and corporate sponsors conducted at an XPS Pensions conference found that 62 per cent of the delegates surveyed said the CMA has not gone far enough.

The CMA could go just a bit further

Simeon Willis, XPS Pensions

They were asked for their thoughts on the proposed remedies, and whether they have done enough to make the market more efficient.

Thirty-eight per cent said these went far enough, while only 2 people in the survey said the CMA review recommendations had gone too far.

A CMA spokesperson said: “This is an extremely important sector that affects how well millions of people’s pension savings are invested – it’s therefore vital we ensure that competition is working properly.

“We’ve proposed a number of significant 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.

“We will consider all feedback before publishing a final decision.”

The CMA is considering points made by XPS Pensions and others in response to its provisional decision. It has requested further information on some of the points, such as whether trustees should be required to take independent investment advice.

XPS Pensions’ head of investment Patrick McCoy believes in a statement that the consultancy said the CMA should extend the mandatory tender requirement to make trustees take independent investment advice.

Simeon Willis, chief investment officer at XPS Pensions, said the CMA “could go just a bit further in order to really address the underlying issues that are at play”.

Big decisions should require independent advice

Roger Brown, founder and director of oversight specialist IC Select, agreed that a tender process to appoint a fiduciary manager should include the requirement for the trustees to take independent investment advice.

Trustees are required to take advice for investment decisions under the Pensions Act 1995, but they are not required to take advice for major decisions such as delegating to a fiduciary manager.

"If you're appointing a manager to run 5 per cent of your fund in a passive equity fund... [which] will have very little impact on the overall long-term return of the fund, then you have to take advice," he said. "But you can appoint a fiduciary manager to run 100 per cent of the fund, without taking advice."

Brown noted that appointing a fiduciary manager is “a huge decision for pension schemes, and why anyone would take that without taking advice is extraordinary”.

More generally, he noted that people’s expectations of the CMA “were perhaps greater than they should have been”.

He stressed that the CMA is “looking at this purely from a competition point of view… they’re not looking at it from a pensions governance point of view”.

Barbara Saunders, managing director at River and Mercantile Solutions, agreed that independent advice can add significant value to certain trustee boards.

However, she added: “We don't believe it should be a requirement to take independent advice, as this would create an additional cost, and may act as a deterrent for small schemes who may benefit from fiduciary management the most.”

When advice becomes sales

XPS Pensions also said that the splitting of advice and marketing by fiduciary managers should go further, so that it requires selling to be done by a different person than the individual providing advice, according to McCoy.

The CMA found that paid-for advice on investment strategy is occasionally combined with information on the investment adviser’s own fiduciary management products without comparable information on other products.

It recommended a requirement for investment consultant-fiduciary management companies “to include a clear mandatory warning that alerts trustees to the nature of the information being provided by the firm”.

Willis said that while warnings could help, they do not “go quite far enough in addressing this confusion of advice and marketing, because it will still come from the same person”.

He said a requirement for marketing to be performed and delivered by a separate person would improve the situation. 

Joe Dabrowski, head of DB, LGPS and standards at the Pensions and Lifetime Savings Association, said: “We agree with the Competition and Markets Authority’s provisional decision that trustees need greater clarity regarding the nature of the information that they receive and whether it constitutes advice, marketing or both.”

Dabrowski added that the PLSA would expect the proposed guidance for the Pensions Regulator on purchasing investment consulting and fiduciary management services to include an assessment about the value of independent advice and when to seek it.

“However, given the significant variation of scheme size and expertise it is unlikely to be a one-size-fits-all model,” he said.

Ian Love, a managing director in SEI’s UK Institutional Business, said that, while SEI supports the concept of competitive tenders and many of the other recommendations made by the CMA, “the bigger question for debate and consideration is how the industry can ensure that already stretched trustees are not over burdened by further rules, requirements and regulations”.