The CMA's final decision on investment consultancy reforms
12 Dec 2018
Anthony Ellis, Partner and Head of Investment Consultancy at Hymans Robertson responds to the final reforms from the CMA on its ‘Investment Consultants Market Investigation’ report.
“There will be a final sigh of relief from the industry that the CMA has decided not to introduce measures that would inhibit innovation within investment consultancy. Today’s decision recognises that there is already an appropriate best practice framework in place to ensure the continued sensible investment of millions of people’s pensions in the institutional market. Although, as the CMA has identified, there is clearly scope to improve, particularly in relation to fiduciary management. The introduction of mandatory competitive tendering for schemes considering this move is therefore a sensible and welcome step in the right direction.
“However, we are disappointed that the CMA appears to have missed the opportunity to further level the playing field between the investment consultants who don’t provide fiduciary management and those which do. Competition between the two markets is clear and there has been considerable overlap between them, however the CMA has continued to view them as separate. This can lead to an unfair environment as the decision to follow an advisory or fiduciary route is often made in advance and the tendering process may then be restricted to one or the other. Given this, as recommended under as one of the CMA’s remedies, it is imperative that clients are provided with a sufficiently clear analysis of the fiduciary fees to help them make decisions on which type of provider would best match their investment needs.
“Given this competition for business we expect the growth of fiduciary oversight to continue and to become an important attribute for strategic advisers. The lines between consultancy and asset management have continued to blur over the past ten years and there is a relatively small universe of truly independent firms who can help provide unconflicted advice across the full range of implementation models. This level of oversight can no longer be seen as a ‘nice to have’ but rather an essential component of a fiduciary management strategy. It is entirely appropriate that trustees should oversee the activities of all their asset managers (including fiduciaries) to independently assess whether or not they are doing a good job. The case for this was well made long before the involvement of the CMA, but their final decision underlines this as good governance practice.
“We agree that more transparent material around the value consultants add can help trustees, but that the material and measures must reflect the long-term nature of the decisions and relationship. A focus on short-term measures would lead to an industry focused on short-term advice, which would go against the key principles set out in the Myners Review back in 2001. It’s great that trustees will be required to set their investment consultants strategic objectives and firms must report against these. We already help clients set strategic objectives and are very happy to be measured against them. This should be standard practice for all.”