Just a third of pensions trustees conduct a competitive tender before asking their investment consultant to act as a fiduciary manager for client assets, according to an investigation by the Competition and Markets Authority.
The CMA has released the findings of its inquiry into the investment consultant sector this morning, revealing that some trustees have picked their existing investment consultant to be their fiduciary manager even if a better deal may be available elsewhere.
It has also criticised trustees for failing to collect sufficient information on fees and quality of investment consultant work to benchmark their performance and check if they could potentially get a better deal from another provider.
The CMA expressed concerns that investment consultants also offering fiduciary management in the pension space could steer customers towards their own service, giving them an advantage over others.
CMA investment consultants market investigation chair John Wotton says: “This is an extremely important sector that influences how well millions of people’s pension savings are invested, yet we’ve found that many pension trustees may not be getting the best value for money for their members.”
The CMA has set out two key reforms to the sector to address the failings.
First, it will require pension trustees wishing to delegate investment decisions for at least 20 per cent of their scheme assets to a fiduciary manager to run a competitive tender with at least three firms.
If trustees are currently using a fiduciary manager appointed without a tender, there must be one with five years.
Fiduciary managers are also being required to use a “standard approach” on performance for other clients, so trustees can make better provider comparisons, and must provide clear fee information to potential clients.