The CMA has published its ‘Final Order’ following its investigation in to the Investment Consulting market. The key measures focus on tendering for fiduciary management services, improved reporting on fees and performance and an increased focus on setting consultants strategic objectives. The Final Notice, which details the actions consultants, fiduciary managers and trustees will need to take is largely consistent with the CMA’s Final report, as published in December 2018, but a number of items have been clarified. A few key points to note:
Setting strategic objectives – any objectives set are expected to be reviewed every three years and after changes in strategy. Expected outcomes and timescales over which they should be achieved will need to be detailed.
Tendering – where existing appointments have not been tendered and more than 3 years have elapsed since the appointment, a 2-year grace period applies. This means that tenders will need to be undertaken by June 2021. Where more than one fiduciary manager is used, special rules apply if trustees wish to increase assets to more than 20% with those fiduciary managers.
Performance reporting – investment consultants and fiduciary managers will need to report on the performance of recommended products on managers at least annually.
Reporting to the TPR - Trustees and service providers will be required to submit annual compliance statements confirming the extent to which they have complied with the requirements of the Order. The compliance statement will need to be accompanied by a certificate signed on behalf of trustees or the service provider. The first compliance statements will be required within 4 weeks of 10 December 2020.
Most of the remedies will come in to force on 10 December 2019. Prior to December, TPR is engaging with industry stakeholders to develop its guidance, consultation will take place over the Summer. The Government plans to draft regulations this year with the aim of bringing changes into force in 2020 which will replace the CMA order. Once regulations are in place monitoring and enforcement will pass to TPR.
We remain broadly supportive of the remedies suggested by the CMA. However, many schemes are already working on the basis set out by the CMA ie: regular competitive tendering is in place for all service providers, management information and objectives are clear, scheme specific and well-defined. For those schemes, the new remedies seem likely to add little more than an extra reporting burden. Where schemes are not working on the basis set out by the CMA, doing so is likely to leave trustees better informed and better able to manage their investment consultant or fiduciary manager. However, the new rules will add to the significant investment governance burden already faced by trustees.