Summary
The Competition and Markets Authority (“CMA”) is carrying out a market investigation into investment consultants and has now issued its first working paper, covering fees and quality. Its initial conclusion is that competitive processes are not providing clients with the information necessary to judge the value for money of investment consultants and fiduciary managers.
Information on fees and performance
The CMA found that fee information provided to current clients by investment consultants is generally clear, while that provided by fiduciary managers is less so. The position is exacerbated, in relation to underlying fund manager fees, by fiduciary clients not receiving information directly from the fund managers.
When it comes to tenders for new clients, the CMA noted that information from investment consultants was less clear, in that it may be difficult to compare one adviser’s fees with another’s because of differences in structure. Here, fiduciary managers fared better, particularly if a third-party evaluator was involved.
The CMA noted that performance information provided by fiduciary managers is generally clearer, as it tends to focus more on performance in relation to longer-term strategy. However, tenders for new mandates tend not to ask about past performance, particularly for advisory mandates. Where information is provided, the format will differ between providers, making comparison difficult. They note, however, that firms may have valid and technical reasons for using different methodologies.
Potential remedy approaches
The CMA is considering the following potential remedies, on which it is seeking feedback:
- template documents, including standardised fee or performance schedules, for trustees to use in tenders, with guidance on how to assess responses,
- guidance for firms, or minimum standards, on how to provide comparable information in response to off-the-shelf requests,
- requirements on frequency, format and content of fee reporting,
- requiring firms to provide performance information in a standardised way,
- mandatory use of a standardised client survey format, or centrally administered survey with outcomes provided in tenders or in a public register.