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Latest U.K. CMA paper raises concerns over abilities to switch consultants, OCIOs

New analysis raises potential concerns over the extent to which retirement plan trustees are able to assess value for money provided by investment consultants, and over their ability to switch to alternative providers of fiduciary management.

The U.K. Competition and Markets Authority published Thursday its latest work paper under its investigation into investment consultants and providers of fiduciary management, or outsourced CIO, services.

The CMA said its analysis of the switching process in fiduciary management "indicates that the time and costs involved … can be considerable."

The CMA also said levels of trustee engagement vary significantly across retirement plans, with defined contribution and small pension fund trustees less likely to engage when it comes to investment consultants and fiduciary managers than larger counterparts. Emerging findings by the authority suggest that pension funds with certain governance structures, such as those with an investment subcommittee, "are more likely to have higher levels of engagement."

The analysis considered the extent to which plan trustees are able to assess value for money of providers and, where relevant, their ability to act on the outcome of such an assessment. "If there are barriers to trustees' ability to assess different providers and act on this assessment, this may limit their ability to drive effective competition between providers, resulting in higher prices and/or lower quality services than would otherwise be the case," said the CMA's paper.

The CMA focused on four categories: switching firms; procurement and/or switching; the undertaking of a formal review of fees and/or quality; and the undertaking of an external review of fees and/or quality.

It found that, in general, DC plan trustees appear to be "significantly less engaged than average." The rate of switching investment consultants for DC plans is 16% vs. an average of 27% among all retirement plans. The rate of switching or conducting a procurement process was 29% among DC plans vs. an average of 41%.

When it comes to fiduciary management, the CMA said it is difficult to draw firm conclusions as OCIO services are relatively new and emerging, with many plans only recently engaging with a fiduciary manager. However, switching rates in fiduciary management were found to be 9% across plans, compared to 27% in investment consulting, while the average tenure for a provider is six to eight years in both cases.

The paper also outlines potential remedies in the event that the CMA were to find an adverse effect on competition in the case of trustee engagement, investment consulting and fiduciary management. It said these include measures to better inform trustees of switching fees; measures to reduce switching fees; and measures to "empower and incentivize trustee boards to engage."