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U.K. agency pushes for mandatory searches for and regulatory oversight of consultants, OCIOs

The U.K. investment consulting and fiduciary management industries face regulatory oversight by the Financial Conduct Authority under proposals to improve competition and customer outcomes.

The proposals were published Wednesday by the Competition and Markets Authority, in a provisional decision report of its findings under a monthslong investigation into investment consultants and outsourced CIO providers and practices.

"We have provisionally found that there is an adverse effect on competition and that material customer detriment may be expected to result from it in both the investment consultancy and the fiduciary management markets. We have greater concerns about the fiduciary management market due to the features we have found," the report said.

In investment consulting, the CMA said there is a low level of engagement by some customers when it comes to choosing and monitoring providers. Information to help evaluate the quality of providers is also difficult for them to access.

Regarding fiduciary management, those firms providing both investment consulting and outsourced CIO services "have an incumbency advantage, deriving from low customer engagement at the point of first moving into the service, investment consultants steering their advisory customers towards their own fiduciary management service." There is also a lack of access to comparable information regarding performance and clarity on fees.

The CMA made a number of proposals to remedy its findings, besides calling on the government to extend the FCA's regulatory coverage to include the main activities of investment consultants and fiduciary managers.

It wants mandatory searches for first hires of fiduciary managers, and also a requirement to run a competitive search within five years if an existing hire was made without one.

Other proposals include that The Pensions Regulator should provide greater support for searches for investment consulting and fiduciary management customers; providers should report investment performance using common standards; fiduciary management firms should disaggregate fees and provide greater clarity to existing customers on costs; and pension fund trustees should set objectives to evaluate quality of investment consultants.