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.

When changing to a new administration provider, there is often a lot of time spent making sure the transition is effectively and successfully delivered, and rightly so. A good transition is fundamental to the strong foundation from which to build a quality administration service. A bad transition is difficult to recover from and sets the service on the wrong path from the start. However, transition is only one part of the story; it is only the beginning…

Sustaining a quality service requires regular maintenance. A strong foundation is not enough to keep the administration in order over the long-term. But, like in transition, the responsibility for the maintenance of administration services lies with all those involved. It should be a partnership. Administration should be an area in which both sides communicate openly about issues, requirements, changes and any other matters that arise. For this to happen, there need to be regular meetings that build up good relationships and create an open forum for discussion. The meetings should involve the right people, who can make a difference to the service levels and create a realistic but proactive discussion dynamic.

There ought to be an annual plan of activities set out, for example to check up on the level of automation. As schemes change, automation can easily degrade. But this is just one area. All other activities that could be continually improved should also be considered when creating an annual plan, and the teams should be working together to prioritise and realistically plan ahead to manage expectations but still maintain the high-quality service. The annual plan is not just a checklist, but an opportunity to think constructively about the 12 months ahead. What changes are needed, what is possible and what is appropriate?

Reporting is required at a variety of levels recognising the difference between the day to day management that, say a Trustee Executive might undertake, and the higher-level information needed by the Trustee to fulfil their stewardship of the scheme.

How will the administrator be held accountable by the Trustee? Are the right people around the table and do they have the necessary knowledge to challenge? How are issues being addressed and what changes have been put in place to prevent a repeat?

If we were talking about investments, all of this would be a given. It all just sounds a lot like good governance. However, it is often the case that this good governance is not routinely applied to administration in a meaningful way. Consequently, the once solid foundations start to crumble as services change, schemes mature, automation lessens, and attentions fall elsewhere. For the administrator, their attention may be taken on new clients, for the Trustee, on seemingly bigger ticket items.

Administration warrants oversight to ensure that the energy spent in setting it up is not ultimately wasted. Effective oversight of administration will provide an early warning system for issues, allow for identification and mitigation of risks, deal appropriately with significant events and help to achieve Trustee objectives.