The UK’s Competition and Markets Authority (CMA) has issued a legally-binding order to improve the services provided by pension trustees who oversee around £1.6trn ($2.04trn, €1.8trn) of retirement assets.
The move marks the “final step” in the authority’s reform of the investment consultancy and fiduciary management sectors, after its investigation found “significant competition” concerns.
The CMA is ordering fiduciary managers – those who make investment decisions on behalf of trustees – and investment consultants to provide much clearer information about what their customers are getting for their money.
It is also forcing pension scheme trustees to “shop around” for the best deal to suit their needs.
The order requires:
- Pension scheme trustees who wish to delegate investment decisions for 20% or more of their scheme’s assets to run a competitive tender when first purchasing fiduciary management services. This means they must ask at least three fiduciary managers to bid for the work and they can then select the best deal for their needs. The CMA’s investigation found that many trustees used only the fiduciary management service offered by their investment consultant, without exploring alternatives;
- Pension scheme trustees who have already appointed a fiduciary manager for 20% or more of their scheme’s assets without a tender to put the service out to tender within five years; and
- Fiduciary management firms provide potential new customers with more information on their fees and performance, so clients can compare service providers.
The firms must also provide more information on their fees to their existing clients.
Trustees, fiduciary managers and investment consultants have six months to ensure their practices are in line with the order’s requirements. If they do not comply, the CMA could take them to court.
Lacking information to assess
John Wotton, chair of the CMA investigation, said: “Millions of people rely on pension scheme trustees to invest their savings effectively – which is why it’s so important that trustees shop around for the best deal for them.
“Our investigation found that many trustees lack the information needed to assess and compare investment consultants and fiduciary managers, meaning they may not be getting the best value for their members’ money.
“By putting the requirements of our investigation into law today, we will increase competition and make sure these markets work better for UK pension beneficiaries.”