The government has welcomed reforms to the fiduciary management and investment consulting industry suggested by the Competition and Markets Authority, but experts fear it may be some time before key recommendations are implemented.
The Department for Work and Pensions and HM Treasury accepted proposals, including the introduction of mandatory tendering for fiduciary management services, in a letter co-signed by the Pensions Regulator on Tuesday.
The CMA was asked to investigate traditional and delegated investment advice by the Financial Conduct Authority in 2017. It found an adverse effect on competition in the industry, stemming from poor trustee engagement with issues of value for money, in some cases due to a lack of accurate information.
To level the playing field it would make sense to bring those firms within FCA supervision and regulation
Steven Cameron, Aegon
Remedies suggested included requiring trustees to hold a competitive tender exercise when choosing a fiduciary manager, guidance from the Pensions Regulator to help trustees select providers of either service, and bringing investment consultants under the supervision of the FCA.
DWP to consult later in year
Guy Opperman, minister for pensions and financial inclusion, warmly welcomed the CMA’s findings.
“Changes we are proposing will have a positive impact on millions of people’s pension pots,” he said in a statement. “The market sometimes restricts trustees’ ability to find the best value for money, meaning that defined benefit schemes are less affordable and more difficult to fund, while defined contribution schemes face higher costs and reduced returns for members.
“We want trustees to be better equipped and engaged when accessing services which have a huge influence on decisions affecting how much their members will have to live on in retirement,” he added.
The DWP said it plans to consult on the proposals later this year, while the regulator will begin work on developing guidance in a way that can be integrated with its monitoring of compliance for the new rules on tendering.
Treasury cool on FCA scope recommendations
The Treasury, however, seems in less of a rush to move forward with issues falling under its jurisdiction, namely the expansion of the FCA to regulate investment consultancy.
“HM Treasury notes the CMA’s recommendation and would like to thank them for their work on this important issue,” wrote John Glen, economic secretary to the Treasury, in the letter.
“In the context of competing priorities for both the government and the financial services sector, HM Treasury will consider this recommendation and consult in due course,” he continued.
Some in the pensions industry have seen this response as indicating a lack of commitment to the issue, in the face of more pressing problems for the Treasury to solve.
“The whole response from the government does kick the can down the road a bit in that they say they’re accepting two out of three recommendations with consultations,” said Steven Cameron, pensions director at Aegon. “On this one they’re kicking the can even further down the road.”
Reform worth government's time
Mr Cameron explained that the proposal, a likely victim of overriding Brexit preparations, is nonetheless vital to putting different types of financial services companies on a level footing.
“I do think this makes sense because you have many firms who are operating in the corporate pensions market who are regulated by the FCA, and some of what they do and what an investment consultant does is very similar,” he said. “To level the playing field it would make sense to bring those firms within FCA supervision and regulation.”
Extending the FCA’s regulatory remit will not be the panacea that drives value for money from trust-based schemes.
Ian McQuade, director at governance specialist Muse Advisory, said there would be little discernible change for established consultancies not currently under FCA supervision, but that the change would have an impact on the industry.
“Those that already have the controls and processes and checks and balances in place would probably have no problem getting authorisation,” he said. “It would make it far more difficult for people to do it on the hoof… it will drive up the average quality of advice I suspect.”
Trustees can take action for themselves
If government appear slow to legislate in the wake of the CMA review, the evidence unearthed by the markets regulator should certainly be sufficient for trustees to take voluntary steps to check they receive value for money.
Mr McQuade said: “In our experience, those trustees who have engaged in the process, who have been through the formal tendering process, what that’s led to is them making better decisions.”
The CMA review highlighted the cost reductions available to trustees who tender for services, but Mr McQuade added that tendering also helps trustees to understand why a provider may be more expensive, and can help them to pick “the type of fiduciary manager that’s appropriate for them”.
