Willis Towers Watson, Mercer, Aon Hewitt, BlackRock and 10 other influential advisers to pension funds have started to disclose investment performance data in the same way for the first time, as the sector responds to unprecedented regulatory scrutiny.
The Competition and Markets Authority, the UK antitrust body, is looking into the role of fiduciary managers, which oversee investment of £135bn assets for pension funds. The CMA is concerned about a lack of competition and transparency.
As regulators circle, the 14 fiduciary managers that make up most of the UK market have signed up to a new reporting standard. This should enable pension funds to compare companies.
The initiative means that fiduciary managers will no longer be able to cherry-pick performance data to make it as attractive as possible to potential pension fund clients during a tender. Instead all data must be reported consistently.
Peter Dorward, managing director of IC Select, the company that led the development of the code, said: “Pension funds from now will be able to go to fiduciary managers and ask for performance data in line with the standard,” he said.
He said fiduciary managers had benefited from low interest rates but a rise in bond yields and fall in markets could prove to be a test. This made it important for managers’ skills to be assessed.
The CMA warned in March that “competitive processes are not providing customers with the necessary information to judge the value for money of investment consultants and fiduciary managers”.
It said: “The potential competition concern is that customers are not well equipped to choose and subsequently monitor the performance of their provider, and in turn to drive competition.”
It suggested a “standardised approach” could improve outcomes.
Patrick McCoy, head of investment at Xafinity Punter Southall, the consultancy, pointed out that the new standard did not address worries over conflicts of interest.
The big three investment consultants — Willis Towers Watson, Mercer and Aon Hewitt — have been accused of pushing clients to use their highly profitable fiduciary management services.
According to the CMA, while demand for fiduciary management has “grown strongly”, it found that a significant proportion of investors ultimately used their investment consultant’s own fiduciary management service.
The CMA has raised the prospect of forcing the big three to spin off their fiduciary businesses to tackle conflict.
Mr Dorward said work on the standard had predated the CMA review but the regulatory attention helped propel the project. Plans for the standard were revealed by FTfm last year.
Managers backing the standard include Cardano, Charles Stanley, Goldman Sachs Asset Management, JLT Investment Solutions, Kempen Capital Management, Legal & General, P-Solve, Russell Investments, Schroders and SEI, according to IC Select.
Ben Gunnee, head of the fiduciary management business at Mercer, said the standard was an important step. “If the [fiduciary management] market is to grow, transparency has to be at the heart of that,” he said.
The CMA said it expected responsibility for the standard to be transferred to the CFA Institute, followed by the development of a global standard and implementation.
