At Lowermycharges.com we continue to find articles about how conflicted the financial services industry has become in not being open and transparent in its dealings.
The regulator the FCA (Financial conduct Authority) is now demanding that Investment Consultants should be investigated by the Competition and Markets Authority after ruling the industry is plagued by opaque fees and conflicts of interest.
We found this article which explains it all.
September 14, 2017 FT – Attracta Mooney
The UK’s financial regulator has demanded the country’s investment consultants be investigated by the Competition and Markets Authority after ruling the industry is plagued by opaque fees and conflicts of interest.
The Financial Conduct Authority rejected pleas from the UK’s biggest consultancy firms to be spared a full-blown inquiry and this morning announced that the £1.6bn industry, which plays a key role in how the country’s pension funds invest their assets, should be referred to the antitrust body.
The FCA said measures put forward in February by the three largest investment consultants, Aon Hewitt, Mercer and Willis Towers Watson, to divert a full investigation did not go far enough to improve competition. The CMA has the power to enforce a wide range of options to increase competition, including forcing firms to spin off business units.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “It is a significant step for us to make this recommendation. We have serious concerns about this market and believe that the CMA is best placed to undertake this work.”
It is the first time that the FCA has made such a reference to the CMA.
This morning’s decision is the culmination of the FCA’s long-running investigation into the workings of the asset management market in the UK, which began in March 2015. The measures for consultants were among the hardest-hitting parts of the watchdog’s review.
READ FCA shake-up hailed as an inflection point for asset managers
Andy Agathangelou, founding chair of the Transparency Task Force, the campaign group, said: “This is a momentous decision by the FCA, evidencing their determination to protect the interests of the UK’s savers and investors. Every right-minded financial services professional must surely want a competitive, vibrant and conflict-free financial services market and that is what this decision is all about.
“I would be suspicious of any individual or organisation that does not openly and publicly welcome and embrace this very positive development.”
In its interim report published last year, the FCA said it was worried there were “high barriers to entry and expansion” within the consultancy sector and “relatively high levels of concentration”. The watchdog found the so-called big three firms together control between 50% to 80% of the market.
One of the biggest concerns is consultants, who traditionally advise pension schemes on their investment decisions, are increasingly pitching their own asset management services to clients in the form of ‘fiduciary management’. Under this model, consultants take responsibility for deciding on and implementing a pension fund’s investment strategy, instead of just offering advice.
‘This is a momentous decision by the FCA’
The chief executive of a UK pension fund said: “There can be no doubt that investment consulting is a conflicted business. How can consultants honestly say they offer unbiased advice while offering their own investment services?”
The FCA ruled the market was beset by “a weak demand side” with pension trustees relying heavily on investment consultants but having limited ability to assess the quality of their advice or compare services. This translated into low switching rates between firms.
Danny Vassiliades, managing director of Punter Southall Investment Consulting, said: “Contrary to what others in our industry may say, this is a good outcome for investment consulting and its customers.”