In a paper published in March 2018, the Competition and Markets Authority (CMA), the UK’s anti-trust authority, has raised concerns about the level and nature of information provided by consultants and fiduciary managers, indicating that investment consultants and fiduciary managers are not clear enough about fees and performance, which suggests a lack of effective competition.

The findings echoed those of the Financial Conduct Authority (FCA), which initially referred the sectors to the CMA last year. Fee transparency, in particular with respect to third-party fees, was “in general below the standards which ought to be achieved through effective competition”, the CMA said. The overall picture, which also considered the disclosure of information about consultant and fiduciary management performance, was similar.

“The evidence reviewed so far indicates that competitive processes are not providing customers with the necessary information to judge the value for money of investment consultants and fiduciary managers,” the CMA stated. “The potential competition concern with this is that customers are not well-equipped to choose, and subsequently monitor the performance of, their provider and in turn to drive competition between investment consultants, and between fiduciary managers.”

In its Asset Management Market Study, published last year, the FCA said trustees relied “heavily on investment consultants but [had] limited ability to assess the quality of their advice or compare services”. The CMA identified two main approaches to fixing this problem: the first focused on the role and power of trustees, who the CMA said could be empowered to request better information. The second focused on consultants and fiduciary managers providing better, comparable information.

The CMA suggested providing guidance or minimum standards for consultants and fiduciary providers, explaining how to provide comparable information for prospective clients in response to tenders. Requirements could also be set, for example on frequency, format and content of fee reporting for current clients, or for standardised performance metrics. For trustees, the CMA paper suggested the introduction of guidance and off-the-shelf materials for running better tenders.

The analysis distinguishes between information on fees and information on performance, for “current clients” and “prospective clients”. Findings for current clients include:

• Fiduciary management fees were generally less clear than advisory fees.
• For defined benefit (DB) schemes, regular information on third-party fees such as asset manager fees was limited, particularly in fiduciary management as trustees typically did not receive such information directly from the underlying managers.
• Defined contribution (DC) schemes received regular information on third-party fees due to regulatory requirements.

For prospective clients, the findings suggest:

• Information on fees was generally poor in advisory tenders and generally better in fiduciary management.
• Direct comparisons of performance in responses to advisory tenders were difficult.

The CMA has invited feedback on potential remedies, and also on the impact of MiFID II on fee reporting for advisory clients. Overall, the authority said was too early for it to assess to the effectiveness of MiFID II or the work of the Institutional Disclosure Working Group, set up by the FCA to look at asset management costs.

The CMA’s analysis was based on a review of documents distributed by investment consultants and fiduciary managers over the last three to five years, written responses to a detailed market questionnaire, responses to the authority’s “Issues Statement” and initial hearings, and a survey of 966 trustees across DB, DC and hybrid schemes.