FCA makes Market Investigation Reference for investment consultancy services

The Financial Conduct Authority (FCA) has today confirmed its final decision to make a Market Investigation Reference (MIR) to the Competition and Markets Authority (CMA) in relation to investment consultancy and fiduciary management services.  This is the first time that the FCA has made such a reference to the CMA.

The FCA has the power to make a MIR when it has reasonable grounds to suspect that any features of a financial services market prevent, restrict or distort competition. In the case of investment consultancy and fiduciary management, the FCA considers those features are:

  • 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 with resulting low switching rates.
  • Relatively high levels of concentration and relatively stable market shares with the largest three firms together holding between 50-80% market share.
  • Barriers to expansion restricting smaller, newer consultants from developing their business.
  • Vertically integrated business models creating conflicts of interest.

In the interim report on its asset management market study published in November 2016, the FCA announced it had made a provisional decision to make a MIR. In response, the three largest investment consultants (Aon Hewitt, Mercer and Willis Towers Watson) offered the FCA a package of undertakings in lieu (UIL) of a reference to address its concerns.

Although the FCA welcomed the UIL package proposed, it noted that it could not be confident that the package would provide a comprehensive solution to the adverse effects of competition identified. So, alongside its asset management market study final report published in June 2017, the FCA announced a provisional view to reject the UIL.

Following further consultation the FCA has considered the responses it received and made a final decision to reject the UIL and make a MIR.

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.

'Investment consultancy services play a significant role advising pension fund trustees when they are procuring asset management services. It is important that trustees can be confident they are getting good quality advice and value for money from their investment consultants.'

Assets affected by investment consultants’ advice are significant, with up to £1.6tn of assets affected by the advice of the twelve largest firms. The institutional investors who use investment consultancy services are mainly pension schemes but also include charities, insurance companies and endowment funds.

Notes to editors

  1. Read the Final Decision: Market Investigation Reference (MIR) on investment consultancy services and fiduciary management services
  2. Asset Management Market Study Final Report (PDF)
  3. Asset Management Market Study Interim Report (PDF)
  4. The FCA has the power to refer a market, or a feature of several markets, to the Competition and Markets Authority (CMA) for in-depth investigation with regard to financial services in the UK. These powers are part of the FCA’s concurrent powers that came in to force on 1 April 2015. 
  5. The investment consultancy market provides a number of different services to institutional investors, in particular pension trustees. This covers the provision of advice in relation to strategic asset allocation, manager selection, fiduciary management, and to employers.
  6. There are a number of ways of measuring market share. Based on firm revenue data the FCA estimated in its interim report that the largest three investment consultants (Aon Hewitt, Mercer and Willis Towers Watson) hold at least 56% of the advisory market. Using the proportion of assets held by their clients the share of the market held by the biggest players increases to up to 80%. Calculating by the number of clients leads to a lower market share estimate for the larger firms of around 50%.
  7. Undertakings in Lieu (UIL) are essentially undertakings from a firm (or a group of firms) that they will amend their practices in place of a market referral to the CMA.
  8. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  9. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  10. Find out more information about the FCA.