News | October 8, 2019


The Pensions Regulator (“TPR”) has recently closed a consultation exercise whereby it sought responses to draft guidance which seeks to help trustees comply with the new duties set out in the UK’s Competition and Markets Authority (“CMA”) final order[1] (the “Order”), issued on 10 June 2019, regarding engaging with investment consultants and fiduciary managers[2].

TPR’s consultation was aimed primarily at trustees of occupational pension schemes and providers of fiduciary management and/or investment consultancy services, including trustees who have appointed a fiduciary manager that will be required to run a competitive re-tender. The Local Government Pension Scheme was also brought into scope for some aspects of the Order.

The Order

Following a referral made by the Financial Conduct Authority (“FCA”) in September 2017, the CMA conducted an investigation into competition in the investment consultancy and fiduciary management markets during 2018, publishing its reforms in December 2018. As part of its review, the CMA identified a number of factors that adversely affect competition in these markets and confirmed that it would impose a series of remedies which will apply to trustees and take effect from 10 December 2019.

The CMA’s findings included:

  • low levels of engagement by trustees when choosing and monitoring their investment consultant;
  • low levels of tendering when first moving into fiduciary management;
  • that it was difficult for trustees to access and assess the information needed to evaluate the quality of their existing investment consultant and to identify if they would be better off switching adviser; and
  • the costs of switching out of fiduciary management were found to be high and it was identified that it was also difficult for many trustees to access and assess the information they needed on the fees and charges within their existing fiduciary manager agreement to consider if they would be able to receive better terms from another provider.

The final report set out a number of remedies to improve the information that investment consultants and fiduciary managers provide trustees on fees and performance and to facilitate trustee engagement when tendering for services and assessing the performance and quality of their service providers.

It should be noted that there are some exemptions for small schemes and some public service schemes, as well as master trusts operated by firms offering investment consultancy and fiduciary management services.

The key remedies

The key remedies set out in the Order and which come into effect on 10 December 2019 are:

  • requirement for ‘first time’ tendering for fiduciary management services when 20% or more of scheme assets are delegated;
  • separation of advice and marketing by firms that offer both investment consultancy and fiduciary management services;
  • requirement on fiduciary management firms to disclose fees to prospective customers;
  • duty on trustees to set their investment consultants’ strategic objectives; and
  • requirement on investment consultants and fiduciary managers to report performance of recommended asset management ‘products’ or ‘funds’ using a basic minimum standard.

Where a scheme already has fiduciary management services, these must be re-tendered within five years of their commencement, or 10 June 2021 if later, if there was no competitive tender process in the first place.

TPR’s consultation

The CMA recommended that TPR produce guidance for trustees to support them in meeting the requirements under these new remedies. Investment consultants and fiduciary managers perform an important role for trustee boards and have a significant influence over investment matters that affect member outcomes. It is therefore important that trustees are well-informed in order to select good quality suppliers of investment management services and are able to monitor their performance to ensure that the expected quality of service is delivered.

TPR has produced a suite of guidance aimed to support trustees in meeting the new duties and engaging with their providers of investment consultancy and fiduciary management services. These draft guides are as follows:

1.         Tendering for fiduciary management services – the guide contains a set of key principles to illustrate a good practice approach to tendering. These are supported by an illustrative case study to demonstrate how it may work in practice;

2.         Tendering for investment consultancy services – this guide outlines how the key principles of a competitive tender may be applied to the tender for investment consultancy services, with an illustrative case study;

3.         Setting objectives for providers of investment consultancy services – this document addresses how trustees can set objectives in line with the draft regulations, but also considers how to address the broader services such consultants provide; and

4.         Choosing an investment governance model – this guide contains matters which trustees should consider when choosing an investment governance model. It is aimed at assisting trustees to understand investment governance and does not reflect new legal requirements.

Final versions are expected later in 2019.

Separately, the DWP is consulting on incorporating the measures that apply to trustees into UK law so that TPR can oversee them.

WB Comment

The Order will be relevant to most UK pension scheme trustees.

Not all schemes appoint a fiduciary manager but those who have or are thinking about doing so will need to give competitive tendering serious thought. Many more schemes will have an investment consultant and trustees will therefore need to think about setting strategic objectives.

Overall, the new requirements should have a positive effect on a market which traditionally struggled when it came to promoting healthy competition. Encouraging tender regimes, better disclosure of fee and performance information alongside proper management of conflicts of interest where firms offer both investment consultancy and fiduciary management services is to be welcomed.

TPR’s guidance is to be welcomed, however, trustees should also take legal advice on the intricacies of the Order and ensuring their annual declaration of compliance to the CMA is dealt with properly.

[1]  The Investment Consultancy and Fiduciary Management Market Investigation Order 2019

[2] See our Pensions Ready Reckoner