The investment consulting and fiduciary management markets in the U.K. are not highly concentrated, with institutional investors appearing to have access to a range of providers, the Competition and Markets Authority states.
In one of three papers published Thursday as part of its investigation into investment consultants and providers of fiduciary management, or outsourced CIO, services, the CMA examined the "competitive landscape" of the industry.
It looked in particular at levels of market concentration in investment consulting and fiduciary management. Detailed analysis of data from 45 firms on their revenues, number of customers and assets under advice, split by retirement plan size and type, led the CMA to conclude the investment consulting market is not highly concentrated.
It said the largest investment consulting firm — which it did not identify — has a market share of less than 20%; while the three largest investment consultants — Aon, Mercer and Willis Towers Watson — make up less than a 50% share of the market in total.
"The market is characterized by a number of well-established, midsized firms who in several segments enjoy a stronger position than some of the three leading firms," the paper said. The CMA added 10 firms make up about 75% of the U.K. investment consultant market.
While the CMA also said the fiduciary management market "does not appear to be highly concentrated, and customers at present have access to a sufficient number of suppliers," it said that market is more concentrated than investment consulting.
No firm has a market share above 20% in fiduciary management. There are five large firms in the market — Aon, Mercer and WTW, as well as River and Mercantile and Russell Investments. "This means that the five-firm concentration ratio is higher," at least 65%, than in investment consulting at 42%.
The CMA also highlighted the recent entry of large money managers into the fiduciary management market.
"However, we have also considered the trend in concentration in (fiduciary management), which is expanding rapidly," said the paper, citing that total revenues have more than trebled over the last five years. "Our analysis shows that the combined position of (Aon, Mercer and WTW) has grown substantially, having increased by around 40 percentage points in the last 10 years. This represents a significant upward trend," the CMA said.
The CMA also published papers examining barriers to entry and expansion in investment consulting and fiduciary management, noting it has "not identified or concluded whether there is an adverse effect on competition in relation to barriers to entry or expansion;" and on financial performance and profitability, finding the aggregate net profit margin for combined services for the six providers it analyzed was 20% to 30% in 2016. The CMA said it was not possible to conclude whether profits were in excess of the cost of capital.