* Proposes mandatory tenders for fiduciary managers
* Calls for pensions regulator to help trustees to choose
* Backs oversight of industry by financial markets regulator (Adds background, industry comments)
By Simon Jessop and Carolyn Cohn
LONDON, July 18 (Reuters) - Investment consultants who advise UK pension schemes face tougher rules under proposals outlined by Britain’s anti-monopolies regulator on Wednesday.
Among changes proposed were mandatory competitive tenders for pension trustees selecting their first fiduciary manager and deadlines to retender within five years if they have already appointed a manager without doing so.
The Competition & Markets Authority (CMA) has spent 10 months gathering information on investment consultants, which advise UK pension schemes, after the Financial Conduct Authority expressed concern over a range of issues, including conflicts of interest and opaque fees, as part of its own review into asset management.
UK pension schemes have total assets of 1.6 trillion pounds ($2.1 trillion) and the dominant advisors are Aon, Mercer and Willis Towers Watson.
Some market participants had anticipated the CMA might call for a break-up of the three largest players, but in its provisional response the authority said that their combined market share was below 50 percent and there were no significant barriers to entry.
However, it said changes were needed to ensure consultants provide better value for money, both when advising pension schemes on where to invest and also when doing it for them, known as fiduciary management.
“We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members,” said John Wotton, chair of the CMA’s Investment Consultants Market Investigation.
“This is an extremely important sector that influences how well millions of people’s pension savings are invested, and it’s therefore vital we take steps to make sure that competition is working properly.”
Ed Francis, head of investment, EMEA, at Willis Towers Watson, said the firm welcomed the proposals, but asked the CMA “to consider the proportionality and cost to schemes of a mandatory tendering requirement, particularly for smaller pension schemes”. Fiona Dunsire, CEO of Mercer UK, said the firm supported tendering as “good practice for clients”.
The CMA also recommended that The Pensions Regulator provide trustees with more advice on how to choose and scrutinise providers.
“They may lack the information they need to compare competing offers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available,” Wotton said.
Andy Cox, global business officer and head of EMEA/APAC at Aon, said the firm did not believe that the CMA “has presented sufficient evidence to show any adverse effect on competition, nor do we recognise low levels of engagement among our trustee clients,” adding that “the CMA has come forward with provisional remedies and recommendations that we support in principle”.
The CMA said fiduciary management firms must also provide clearer information on fees and how they have performed for other clients.
It also wanted to see greater oversight of the industry and proposed the British government broadens the scope of the FCA, a proposal which the Pensions and Lifetime Savings Association said it welcomed.
Industry feedback on the CMA proposals is due by Aug. 24. ($1 = 0.7643 pounds) (Editing by Sinead Cruise/Emelia Sithole-Matarise/Susan Fenton)