Market breakup would have “adverse consequences” for members and trustees, CMA say

The Competition and Markets Authority (CMA) said the break-up of some investment consultant (IC) and fiduciary management (FM) providers would have “adverse consequences” for both trustees and schemes members.

In the CMA’s Investment Consultants Market Investigation published today, 18 July, it suggested a number of remedies to reform the pension investment consultancy market, but said that a break up could lead to increased costs which would pass onto the member and that providers could chose to divest services, reducing choice for customers.

Instead, the CMA put forward a number of remedies in the provisional decision, including the requirement for pension funds to run a competitive tender when choosing their first FM to increase competition within the market.

However when it came to splitting up providers, the CMA said: “Costs for providers, and prices for customers, could go up as a consequence IC-FM firms might close, rather than divest, a line of business which would reduce choice for customers and increase market concentration.”

Furthermore, it added that pension funds would no longer be able to select FM services from a consultancy “which already understands their schemes needs”.

The survey found that just 10 per cent of trustees supported the break-up of FM and IC providers, rising to 18 per cent among the larger schemes.

The CMA added that it thought about breaking up the practices internally, but found that it “would be difficult to monitor (and potentially easy to circumvent)”.

It added: “We consider that the mandatory tendering remedy for fiduciary management services, combined with the information remedies, as set out above, would be at least as effective as this remedy, but importantly without the adverse consequences for trustees as set out above.

“We also consider that these proposed remedies are less intrusive and disruptive than this remedy. Our proposed remedies package is therefore the more proportionate solution to the adverse effect on competition.”

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