The Competition and Markets Authority (“CMA”) has published the Investment Consultancy and Fiduciary Management Market Investigation Order 2019, the package of remedies arising from its market investigation into investment consultancy and fiduciary management.
Mandatory tendering for Fiduciary Management
With effect from 10 December 2019 trustees of schemes who plan to appoint a fiduciary manager to manage 20% or more of the scheme’s assets (or to appoint an additional fiduciary manager that would take their total assets under fiduciary management from under 20% to over 20% of the scheme’s assets) must carry out a competitive tender process involving at least three unrelated providers.
Where there is a fiduciary manager appointment in place already, covering more than 20% of the scheme’s assets and no competitive tender process has been carried out, the trustees must carry out such a tender process by the later of:
- 5 years after the date of the original appointment and
- 10 June 2021.
Separation of advice and Marketing Material
With effect from 10 December 2019 firms that provide both investment consultancy (“IC”) and fiduciary management (“FM”) services must not provide their pension scheme trustee clients with marketing material in relation to their FM services in the same document they are using to provide advice. In addition, marketing material for FM services will have to contain several health warnings, making clear that the material is not impartial and reminding trustees of the requirement to hold a competitive tender before selecting a fiduciary manager.
Fee information provision requirements
With effect from 10 December 2019 FM providers must provide clients, at least annually, with a clear statement of their fees, setting out separately:
- all costs and associated charges charged for the FM Service, covering advice and implementation and including any incidental costs, such as performance fees, paid during the reporting period,
- asset management fees in respect of the FM provider’s own funds and those provided by third party managers, with performance fees shown separately. Fees should be itemised on a fund-by-fund basis, including details of the effect of the charges on the investment returns achieved,
- any fees charged for execution,
- all other investment costs and charges, including custodian fees and administration charges.
An aggregate cost should also be shown, including charges deducted directly from assets, those invoiced separately and those paid to the FM provider and to third parties. All costs and charges must be totalled and expressed both as a cash amount and as a percentage of the assets being managed.
FM providers will have to provide similar information to potential clients as part of a competitive tender process, covering all costs that are likely to be incurred by the scheme, including any exit charges that might apply if the appointment is terminated.
Performance information requirements
By 10 June 2020 FM providers must put in place a Fiduciary Management Performance Standard, to be submitted for approval by the CMA by the majority of FM providers. Providers will also be required to assist the Pensions Regulator in providing guidance for trustees on using the performance standard. After approval the standard will have to be used by all FM providers when tendering to potential clients.
If FM providers cannot agree a suitable standard within the timescale, the CMA will appoint an independent person to do so, at the FM providers’ expense.
Investment Consultancy Services – objective setting
With effect from 10 December 2019 trustees must set strategic objectives for their Investment Consultant.
Providing performance information to potential clients
With effect from 10 December 2019, when an investment consultant or FM provider is presenting a performance comparison including its recommended funds, it must do so in a way:
- that is meaningful, fair and balanced,
- that specifies the source of the information and
- that includes the key facts and assumptions underlying the performance figures.
Where marketing information contains past performance figures for recommended or in-house funds, the performance figures:
- must not be the most prominent feature of the communication,
- must cover at least a 5-year period or such shorter period as the firm has been recommending or managing the fund and
- must make clear the effect of charges on the performance figures.
Monitoring and compliance
Trustees, investment consultants and FM providers will be required to submit annual Compliance Statements to the CMA, confirming the extent to which they have complied with the requirements. If any such party becomes aware of non-compliance within its organisation, it must notify the CMA within 14 days of becoming aware.