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Regulation

U.K. regulator exploring issues that affect consultants

Competition for clients, conflicts of interest and barriers to entry and expansion are set to fall under the scrutiny of the Competition Markets Authority under its investigation into investment consultants.

The CMA set out details of the areas it proposes to examine as part of its in-depth look at investment consultants following a referral Sept. 14 by the Financial Conduct Authority.

The investigation covers investment consulting and fiduciary management services, with the CMA now carrying out a "thorough and independent investigation to see if there are any market features which prevent, restrict or distort competition."

Should the CMA find competition concerns, it will then decide whether and what action is necessary to resolve them.

The CMA has grouped potential issues and possible remedies to these issues into three areas: whether difficulties in clients' ability to assess, compare and switch consultants mean there is little motivation to compete for customers; whether conflicts of interest reduce the quality and/or value provided by consultants; and whether barriers to entry and expansion mean there are fewer challengers to put pressure on the established investment consultants to be competitive — leading to worse outcomes for clients.

The CMA document, which it described as an issues statement, aims to help those submitting evidence to the CMA focus on the issues under investigation. The CMA also wants to know whether it has identified the correct issues and if others should be explored. It also wants views on potential resolutions to any problems it identifies.

An investigation group has been appointed from among the members of the CMA's expert independent panel.

Potential remedies to the three areas include requiring increased transparency and disclosure about the fees charged to investors; moving investment consulting and fiduciary management services into the FCA's regulatory perimeter; and making procurement processes for hiring an outsourced CIO or fiduciary manager and/or investment consultant mandatory.

"It is extremely important that the investment consultancy sector works effectively for its clients, which include many of the U.K.'s biggest pension funds, and we want to ensure we are looking at the right issues," said John Wotton, chairman of the investigation group, in a statement accompanying the CMA document. "That is why we are urging people to get in touch if they have any evidence to share or views about whether these are the correct areas for us to be investigating."

Submissions in response to the issues statement are invited in writing by Oct. 12, either by email​ or postal mail. The CMA investigation follows the FCA's asset management market study published in June.