Trustees could drop investment consultants

27 Jul 2017

The majority of pension scheme trustees could dump their investment consultant following the Financial Conduct Authority’s (FCA) asset management probe, a poll claims.

SEI found that 60% of the trustees it spoke to are ready to consider an alternative to the traditional investment consultant model.

The poll also found that 87% of those responsible for schemes owning between £20m and £6bn of assets will re-assess their investment consultant relationships in the next two years.

This is in response to the findings of the FCA’s Asset Management Market Study which were published last month and pointed to “conflicts of interest” in firms providing both advisory and fiduciary services.

The watchdog is on the verge of referring the industry to the Competition and Markets Authority (CMA) after rejecting proposals by the three largest consultancies – Willis Towers Watson, Mercer and Aon Hewitt – to improve their practices.

The Pensions and Lifetime Savings Association (PLSA) has welcomed the potential market review. Investment and DB policy lead Caroline Escott said consultants can add value for institutional investors and scheme members.

“However, although some PLSA members have said they are happy with the services offered by their consultants, others have consistently expressed their concerns about the potential misalignment of incentives in the industry,” she added.

Although Escott welcomed the proposed changes offered by the three largest investment consultants, she pointed to “insufficient coverage or detail” in the proposals.

“The FCA identified issues on both the demand and the supply side of what is a complex and evolving market; a CMA investigation could probe competition issues in greater depth and recommend far-reaching solutions,” she added.

“We would therefore support a referral to the CMA and hope such a step would ensure a market which works in the best interests of pension schemes and their members.”

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