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Pension Funds

U.K. pension fund trustees need more information to evaluate consultants, fiduciary managers – CMA

Pension fund trustees do not have enough information to "judge the value for money" of investment consultants and fiduciary managers, warned the U.K.'s Competition and Markets Authority.

In a working paper outlining its initial findings in its investment consultants market investigation, the CMA focused on information about fees and quality.

"The evidence reviewed so far indicates that competitive processes are not providing customers with the necessary information to judge the value for money of investment consultants and fiduciary managers," the paper said. "The potential competition concern with this is that customers are not well-equipped to choose and subsequently monitor the performance of their provider, and in turn to drive competition between investment consultants and between fiduciary managers."

The CMA's paper focuses primarily on whether pension fund trustees have access to information to help them assess and monitor their current and potential providers. It also outlines potential remedies to its concerns.

Work by the CMA, including a survey of trustees, found that advisory fees are "typically clear, with simple regular invoices." Fiduciary management, or outsourced CIO, fees "generally less so; some clients do not receive regular invoices and it can be unclear exactly what services are included in invoices," the paper said.

Regular information on third-party fees, such as money manager fees, is "limited" under both advisory and fiduciary management arrangements for defined benefit funds. "This is particularly notable in (fiduciary management), as trustees typically do not receive such information directly from underlying managers."

Defined contribution trustees, however, "receive regular information on third-party fees due to regulatory requirements."

The paper considers four further issues:

  • information on performance for clients, finding that information is generally clearer under fiduciary management arrangements than advisory;
  • information on fees for prospective clients, finding that "information on fees is generally poor in advisory tenders" but generally better in fiduciary management procurement;
  • information on performance for prospective clients; and
  • "other information on performance," with most processes asking for some information on a firm's overall quality of service.

Potential remedies suggested by the CMA include template documents to present to trustees, including standardized fee or performance schedules, and guidance on how to assess responses and requesting relevant metrics.

The deadline for responses to the paper is March 22.