The long-awaited provisional outcome of an investigation into the investment consulting and fiduciary management sectors in the U.K. was largely welcomed by market participants, even if they found the results unsurprising.
The Competition and Markets Authority on July 18 published its provisional decision report, which is now open to comment from the industry, with a final report expected by March.
While the details need to be worked through, "broadly these were remedies we thought were both helpful to the industry in terms of creating a level playing field in the way things are done, and the sorts of things the industry has been working on in some ways anyway," said Ed Francis, head of investment, Europe Middle East and Africa at Willis Towers Watson PLC in London.
The CMA started its work last year after the U.K. financial watchdog, the Financial Conduct Authority, referred the investment consulting and outsourced CIO sectors for investigation because of competition concerns.
Highlighting the importance of these sectors, the CMA report said investment consultants "influence" £1.6 trillion ($2.2 trillion) in U.K. retirement plan assets, while fiduciary managers run £110 billion in assets. The investment consulting market doubled in size in the decade ended 2016, to about £303 million in revenue, the report noted. The OCIO market is "expanding rapidly," with revenues more than tripling in five years to hit about £255 million in 2016.
In its report, the CMA said it had "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." It said it is more worried about OCIO, including greater competition problems.
To remedy these concerns, it made a num-ber of suggestions to the industry, including a call for the practices to fall under the regulatory auspices of the FCA, for mandatory searches under OCIO arrangements and for clarity over fees.
Industry sources said the proposals could have been far more burdensome, with initial fears that the CMA might have called for the separation of advisory and OCIO functions within firms providing both services.
One thing that was particularly welcome, but unexpected, was the "strong message around the unbundling of fees," Mr. Francis said.
In its report, the CMA proposed a requirement for fiduciary managers "to report disaggregated fees to existing customers," and called for "minimum requirements for fee disclosures for prospective clients."
"That strong message was a very healthy one — there are some dysfunctions that come from the bundled fee model," Mr. Francis said.
Caroline Escott, policy lead-investment and defined benefit at the Pensions and Lifetime Savings Association in London, said the report came to "sensible conclusions and focuses on some of the key areas that require attention."