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Competition & Markets Authority review: Springboard to a better future?

Competition & Markets Authority review

The Competition and Markets Authority’s final report is now in. We explore what it means in the short and long run.

Paula Champion - Director, Investment Advisory

Director, Investment Advisory

KPMG in the UK


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With fiduciary management revenues having quadrupled since 2011, UK pension schemes spending over £250 million with providers in 2017 alone, and broadly half of pension schemes buying fiduciary management from their existing investment consultant, intervention and regulation was undoubtedly on the cards.

The Competition & Markets Authority’s (CMA) final report is now in. It concludes that across the industry as a whole, trustees struggle to evaluate the quality of their investment adviser, not least because there can be a lack of clarity in investment objectives, which can make assessment of progression difficult.

It found particular concerns around the fiduciary management market. “Integrated” advisers (who offer both investment consultancy and fiduciary management services) benefit from an “incumbency” advantage. The risk is that clients are steered towards the incumbent’s products without assessing if a better fiduciary product, or indeed a non-fiduciary fund, is available elsewhere.

Short term pain… long term gain

In the short term, this will inevitably put increased pressure on the investment consulting industry and the trustee and corporate community, to ensure the CMA’s remedies are implemented effectively. This could mean yet more time and money spent on reviewing your advisers. 

For example, there will now be mandatory tendering required when a scheme first moves to fiduciary management (with 20% or more of assets), with a competitive review within five years if a mandate was initially awarded without a competitive tender. The CMA proposes that trustees take reasonable steps to explore three proposals from unrelated parties, this will inevitably involve more time and cost for some trustees. 

However, done effectively, trustees will go into the process with their eyes open and better engaged, resulting in lower fees and a higher quality of product and service from providers. The long term benefits could be substantial for schemes.

Our view – a demand for strong independent advice

We are really supportive of the aim and conclusions from the review. The need for strong independent advice is clear. We have already seen “integrated advisers” being more proactive to encourage involvement from third party evaluators (like ourselves) when trustees initially consider fiduciary management. 

However, we are finding that our clients’ needs are far broader than this. They need an independent perspective across the full spectrum of investment advice, giving consideration to the whole of market across both non-fiduciary and fiduciary approaches and products where appropriate.

KPMG Partner and Head of Investment Advisory, Nick Evans believes clients cannot be pigeon-holed. We will continue to give advice bespoke to our clients’ objectives. For those who struggle with governance and the complexity of their pension scheme arrangements, going down a full fiduciary route and delegating their investment arrangements may be appropriate. Others may want a “hybrid” approach, using a strategic advisor and a separate fiduciary manager to implement. We have helped clients with a variety of approaches. 

Based on KPMG Head of Fiduciary Advisory, Greg Wright’s expert opinion, there will be some situations or specific asset classes where the operational and diversification benefits of a fiduciary approach is more effective. We will now add to our existing investment manager research, rating fiduciary managers and products in a similar way to other investment manager funds. This will supplement our existing advice, from setting objectives and targets, through considering investment approaches and managers, to ongoing review and monitoring. Fiduciary management may have a role to play even if you do not delegate all of your assets.

The CMA has made the challenges and potential remedies clear. We see the need for strong strategic advice guided by clients’ objectives. This remains unchanged. We will respond by helping broaden the choices for our clients, mixing and matching options to best meet their governance budget and needs. The key is that we will provide robust manager selection advice based on the whole of market offerings, including fiduciary management, and provide independent, conflict-free monitoring of structures over time.  

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