Xafinity backs FCA referral of investment consultants to CMA

Xafinity says it supports the announcement from the FCA this week that investment consultants - particularly those who advise pension trustees - are to be referred to the Competition and Markets Authority. The Sipp provider and pension consultant said the move was in line with its response to the FCA’s earlier consultation in which it supported the potential referral of investment consultants.The regulator confirmed earlier this week its final decision to make a Market Investigation Reference (MIR) to the CMA on investment consultancy and fiduciary management services, mostly in the pensions sector. It is the first time that the FCA has made such a reference to the CMA.Ben Gold, head of pension investment, North, said: “We fully support the announcement from the FCA to refer investment consultants to the CMA. All industry participants must shape its future, rather than a handful that already dominate the market. We think this will be hugely beneficial to pension schemes and trustees in ensuring the industry and investment markets work effectively, and in the best interests of schemes and their members. “We look forward to the outcome of the CMA investigation. We hope that it leads to an industry far more focused on helping schemes meet the promises they’ve made to their members. This requires clear recommendations about how investment consultants can ensure conflicts of interest are avoided, for example in the provision of fiduciary management services. “We are excited about working with the CMA through their investigation, and sharing our thoughts on how the industry can improve.”The FCA said it was concerned about pension trustees relying “heavily” on investment consultants but having limited ability to assess their quality. It is also concerned about the big three firms holding 50-80% of the market and barriers to entry keeping out newer, smaller consultants. It also questions potential conflicts of interest in the sector.The concerns were flagged up last year by the FCA and also in the recent Asset Management Review. 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 were: • 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.The FCA said the undertakings were a step forward but a referral to the CMA was appropriate to allow further investigation.

Xafinity backs FCA referral of investment consultants to CMA

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