The CMA produced its long awaited ‘Provisional Decision report’ this week (330 pages plus a 168‑page appendix).
In short, its key finding was that, whilst the market is not overly concentrated and hence uncompetitive, there are a few things that could be changed to make it more competitive. Some of these relate to the behaviour of investment consultants and fiduciary managers; most of them relate to improving investment governance generally. The CMA notes that more engaged trustees get better results. Or to put it another way – better governance gets better results – not a surprise to Muse of course!
So, what does the CMA say should be done? Improve governance by:
- compulsory tendering when appointing a fiduciary manager and compulsory retendering of some existing mandates
- forcing combined investment consulting and fiduciary firms to make it clear when they are pushing their own products
- introducing standards for performance reporting and more detailed fee breakdowns
- ensuring that trustees set clear objectives for their investment consultants
To help trustees, the CMA suggests that The Regulator should provide guidance on tendering and the FCA’s remit should be extended to cover more services provided by consultants and fiduciary managers.
The CMA has stopped short of forcing a structural change on the industry (for example outlawing combined investment consultants and fiduciary managers).
We think that the proposals are proportionate to the issues identified and, if implemented well, the governance enhancements should help to improve outcomes. Implementation will be key of course. In particular: any new tendering process must be robust. It must be a proper review and not simply become a ‘box-ticking’ exercise. Where existing mandates are being re-tendered, anything other than a proper review is likely to result in an FM provider’s unwillingness to participate. New performance and fee information also needs to be understood and used in the right way in decision making. The investment consultants themselves have a role in ensuring that their trustee clients have clear objectives.
A lot of trustees have, understandably, put off reviewing their investment arrangements in anticipation of the CMA review. The remedies being proposed do not appear to be too demanding for the industry overall and we expect them to be adopted. Trustees who were waiting for the outcome should therefore wait no longer; good governance dictates that action should take place now.