Fiduciary management will become the dominant offering from the big three investment consultants by 2022, a wealth manager predicts.
SEI institutional group managing director Patrick Disney believes this will be driven by an increasing regulatory burden and a need for consultants, especially the UK’s largest players – Aon Hewitt, Mercer and Willis Towers Watson – to protect revenues.
There are fears that watchdogs will slap new regulations on investment consultants after the Financial Conduct Authority (FCA) published an unfavourable report on the industry in November. The watchdog expressed concerns on conflicts of interest and if the incentives investment consultants chase are in the best interests of trustees.
The FCA’s report also threatened to make a market investigation reference to the CMA on the investment consultancy market. In an unprecedented move, Aon Hewitt, Mercer and Willis Towers Watson clubbed together in February to publish a response.
This included the submission of a package of measures, or ‘undertakings in lieu’ (UILs), the group said were designed to “advance competitiveness and transparency in the investment consultancy and fiduciary management industries”.
Disney said: “There is an oligopoly of advice in the investment consulting sector and the FCA has rightly identified the lack of accountability and misalignment of incentives that exist within it.”
He added that this could lead to some investment consultants exiting the traditional standalone pensions advisory market in the next five years.
“The tide is clearly turning towards fiduciary management, and, while investment consultants will continue to exist in some shape or form in future, it’s likely that regulatory pressure will hasten the demise of the traditional advisory model in the pensions space,” Disney said.
This would not be the first such evolution in the pensions industry. Stockbrokers were once paid commission for managing institutional funds, a model that led to shift towards asset management and the birth of new charging structures.
“Perhaps we are now beginning to see this trend repeat itself, with fiduciary management becoming the dominant model as trustees increasingly see its worth and realise providers’ interests are far more aligned with their own,” he said.
“Ultimately, this is all about better outcomes, and schemes – along with the pension regulators – are beginning to realise that the current investment consulting model is not structured to provide them.”
