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Competition & Markets Authority remedies – what do you need to do?

Competition & Markets Authority remedies – what do you

The Competition & Markets Authority released its proposed remedies for dealing with the ‘adverse effects on competition’. Find out what action you will need to take.

Greg Wright


KPMG in the UK


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On 11 February, the Competition & Markets Authority (CMA) released its proposed remedies for dealing with the ‘adverse effects on competition’ it identified in its fiduciary and investment consulting industry report. The remedies are open to consultation until mid March, but will be made by order. So, with the exception of certain types of schemes (public sector and master trusts particularly), all trustees will have to take action of some description.

If you use fiduciary management (FM) for 20% or more of your assets

It’s going to be quite hard to avoid a ‘competitive tender process’ (CTP) and confirmation thereof to the Competition Markets Authority (CMA). A CTP is defined as ‘using best endeavours’ to get at least three bids from unrelated firms, which are then evaluated. There is no requirement to use a third party evaluator and simply seeking quotes may be sufficient if fewer than three FMs choose to provide one.

You’ll certainly need a CTP for a new mandate. You’ll also need one if:

  • You started off below 20% without a CTP, but it grew to 20% or you placed more assets/mandates to take it above 20% (so you can’t keep awarding small amounts to get round the need for a CTP).
  • You held a CTP and started below 20%, but for the incremental part.
  • You appointed an FM without a CTP with more than 20% of your assets before the date of the order. You’ll need to do a CTP five years from the appointment (you have two years to do this if the mandate has already been in place for five years). The FM won’t be allowed to manage the assets otherwise beyond that point.

So much for trustees – what will fiduciary managers (FMs) need to do?

FMs will need to separate their materials at the discussion stage into ‘marketing’ and ‘advice’.

For existing mandates, you will see much more detail about the costs of running your mandate. This has got to be a good thing to better understand value for money. You will see costs in total and divided into provider, fund management and other charges (e.g. custody). Costs will be shown as a £ amount and % of assets. You’ll even see the costs of each underlying fund used, including their impact on returns.

In a competitive tender, FMs will need to itemise all costs as described above. They’ll also need to show any one-off entry costs, potential exit costs and any features of the proposed portfolio that might increase such costs.

For performance reporting, FMs will need to create a reporting standard and send it to the CMA for approval. It will need support from the majority of the FM industry (and a list of those providers who support it), evidence of how it will work and also how the FMs will support the Pensions Regulator in their guidance to trustees. It must then be used by all FMs in all reporting of past performance (including in CTPs). The CMA will appoint an independent person to oversee the performance standards (paid for by the FMs).

If you have an advisory mandate

You’ll need to set a strategic objective for your adviser (unless they are being terminated within six months of the order). 

Anything else?

Afraid so! Advisers and FMs will have to meet certain standards when presenting past performance data of their recommended managers (including impact of fees if performance is quoted gross).

Finally, trustees, advisers and FMs will all have to submit annual compliance statements and certification to the CMA, regardless of whether they have chosen full FM, partial FM or advisory. The statement will be relevant to the approach taken.

That sounds a lot!

It is, although much of the work will fall to the providers. Nonetheless, it is worth thinking about where you and your scheme sit and planning how you will react to the tasks that may be coming your way. We should know the final position towards the end of March or April, with the order coming into effect six months after that.

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