Background to the review
The Financial Conduct Authority (FCA) referred the supply and acquisition of investment consultant services and fiduciary management services to the Competition & Markets Authority (CMA) for investigation in 2017. The review was prompted by concerns of a concentration of suppliers, a lack of competition (evidenced by a general lack of switching between suppliers), and a potential conflict between investment consultants recommending their own fiduciary management services to clients.
Initial findings
In July the CMA reported its initial findings and recommendations. We commend its approach and we were pleased to see there is to be no compulsory split of investment consultants from fiduciary managers; a move which we think would have been extreme.
However, the CMA sees plenty of room for improvement across fiduciary managers, investment consultants and trustees themselves, to ensure the retirement income of millions of people can be cared for better. We consider the key points below:
Fiduciary manager selection
Fiduciary managers that also provide other trustee services have clearly benefited from an “incumbency effect”. Going forward, trustees will have to seek out the best provider for their scheme through compulsory competitive tendering. All new appointments will need to be put out to tender immediately and existing mandates that were awarded without due process will need to be retendered within five years.
Fiduciary manager transparency
Full disaggregation and disclosure of fees (including exit costs) will be required in future. As will the use of a common set of standards for reporting performance. These measures make perfect sense, although trustees are still likely to need independent advice on how to interpret the figures and assess whether their manager is doing a good job for them.
Investment Consultant performance
In order to judge better the performance of their investment consultant, trustees will be required to set objectives against which they can be assessed. This is likely to include a “balanced scorecard” of qualitative and quantitative goals.
Trustee knowledge and understanding
Many, though not all, trustees will require support to govern their investment arrangements properly. The CMA recommends that the Pensions Regulator provides standard guidance to support this.
Quantum’s investment and fiduciary manager oversight services
Quantum offer a range of tools and services to support trustees in improving their pension investment governance.
- Training and support to help improve trustee knowledge of the various governance options available – this considers separately the advisory and fiduciary models plus all variants within the fiduciary framework.
- Traditional investment consulting if this is the trustees’ preferred approach. The transparency being advocated now has always been a feature of the way we work.
- Shortlisting and selection of fiduciary managers to ensure the right fit for each client – we review the entire fiduciary market and can create tailored shortlists for consideration.
- Ongoing review of strategy to ensure that your selected fiduciary manager continues to pursue goals that are consistent with your needs rather than theirs.
- Independent performance monitoring and reporting to ensure that performance meets your scheme’s objectives and that the drivers of performance and implementation are as expected.
Amanda Burdge, Principal Investment Consultant at Quantum