CMA Proposes Changes to Investment Consultancy and Fiduciary Management Services

July 31, 2018

Concerns emerging from its market investigation into investment consultancy and fiduciary management services provided to institutional investors (mainly UK pension schemes) led the Competition and Markets Authority (CMA) to propose changes to the operation of both markets in its provisional findings of 18 July.

The CMA has commented: “There is evidence that the investment consultancy and fiduciary management markets are not functioning well”. In the absence of high market concentration, the CMA’s action is also very much forward-looking with regard to expected future concentration in a rapidly growing fiduciary management market, where incumbent investment consultancy firms are increasingly expanding.

The remedies mainly address the fiduciary management market and primarily seek to enhance the information and disclosure on fees and performance. In addition, the CMA proposes the organization of competitive tenders in fiduciary management. Finally, the CMA recommends to extend the scope of the Financial Conduct Authority’s (FCA’s) regulatory powers with regard to both markets.


The CMA launched a market investigation on 14 September 2017 into investment consultancy (IC) services and fiduciary management (FM) services to and by institutional investors and employers in the United Kingdom (see our previous LawFlash). The need for this market investigation arose after the FCA had found in a first-time market investigation reference to the CMA that there were reasonable grounds to suspect adverse effects upon competition in the IC and the FM markets.

On 18 July, the CMA published its Provisional Decision, in which it proposed a number of changes to the markets in question in order to deal with these competition concerns.


The CMA has found in its Provisional Decision that although the investment consultancy and fiduciary management markets are not highly concentrated and the barriers to entry are not high, there is

  • weakness on the demand side based on a low level of engagement by pension trustees with investment matters; and
  • lack of sufficient and clear information on the supply side that trustees need in order to effectively assess the value of the services contracted and compare with the value of alternative service providers.

The CMA has expressed a greater overall concern about competition in the fiduciary management market, where two additional concerns have been raised:

  • IC-FM firms steering their advisory customers towards their own fiduciary management service
  • Barriers to expansion (switching costs)

Information on fees and performance

IC services

The CMA considers that information on fees should be clear and regular, including with regard to third party fees and not be limited to qualitative information only for prospective clients.

Performance information should no longer be based on a gross of fee basis and IC firms should help trustees in establishing performance control parameters.

The following performance reporting methods have been identified as distorting competition:

  • Survivorship bias: products not recommended for the entire period are removed from the analysis
  • Backfill bias: products are added to the database only after a certain period of time
  • Simulated returns: using statistical techniques which are not objective
  • Inclusion of recommended products and assets classes: which can be misleading if only showing particularly well performing asset classes
  • Selective time periods over which performance is shown

FM services

The CMA objects to aggregated (or “bundled”) fees statements and proposes that the core fiduciary management fee (covering advice and implementation) and asset management fees should be itemised and shown separately in regular fee statements.

With regard to prospective clients, the CMA concludes that transition and exit costs should be clearly indicated in tenders in order to allow for a like-for-like comparison.

Sale of fiduciary management services by investment consultancy firms

Steering of clients towards buying FM services from their current vertically integrated IC firm has been identified as another concern by the CMA. While recognising a legitimate interest in selling additional services, the CMA objects to “strategies to sell fiduciary management to existing investment consultancy clients.

The CMA is also not convinced by policies to “introduce” but not to “recommend” own fiduciary management services because this would leave “grey areas where customers are not clear whether a firm is providing impartial advice on fiduciary management as a governance model, or whether the firm is promoting its own product”.

In particular, the CMA considers that the following practices contribute to an incumbency advantage for the vertically integrated IC-FM firm:

  • Introducing in-house fiduciary management services in the course of giving strategic advice, where it is not clear whether the information is advisory or marketing in nature
  • Comparing in-house fiduciary services to alternative non-fiduciary products/services where documents are not clear about the nature and scope of the comparison
  • Timing and clarity of disclosures on conflicts of interest. The CMA considers disclosures are either too general or too late (in later stage advisory letters only) for trustees to test the market properly

Barriers to expansion

The CMA has found low barriers to entry but high barriers to expansion, in particular in fiduciary management:

  • The importance of reputation means that increasing a firm’s client base takes considerable time
  • Vertically integrated IC-FM firms have an incumbency advantage
  • There are material barriers to switching a fiduciary manager


The CMA proposes a total of eight remedies:

Infographic - Datasource Item: CMA Eight Remedies

Mandatory tendering will also be required within five years after first appointment where the previous provider has been appointed without a competitive tender procedure. 

Critically, in order to support the proposed remedies, the CMA is recommending that the government extend the scope of the FCA’s regulatory powers so as to encompass the main activities of IC and FM providers. This would put these providers on a similar footing with other parts of the investment industry. 

Most remedies are designed to enter into force after the adoption of the final CMA order. A two-year grace period is currently envisaged for competitive tenders of schemes whose mandate exceeds five years.

A “sunsetting” clause shall remove obligations from firms and trustees in the event a statutory regulator introduces equivalent requirements. 

Next steps 

The CMA is currently consulting on its provisional findings and inviting feedback on the report by 24 August 2018.

The statutory time limit for the publication of the CMA’s final report is 13 March 2019. 


Depending on the CMA’s enforcement priorities, the information that has been obtained by the CMA in the course of its market investigation may lead to antitrust infringement investigations by the CMA against specific undertakings. Many of the CMA’s previous market investigations have been followed by competition law infringement investigations.

In this instance, the CMA has found evidence that less engaged schemes obtained worse prices and quality of service and firms with higher quality have lower market shares in the review period. In addition, it clearly transpires from the report that very specific practices have been identified as a distortion of competition. The in-depth review and reference of a great amount of internal documents of market players is an additional factor which typically triggers antitrust investigations. Spillover effects into neighbouring or related financial markets where similar concerns arise are frequent and are therefore to be expected.


Whilst the Provisional Findings and Remedies Proposals relate to the United Kingdom, its findings extend beyond the national scope, in particular with a view to similar markets around the globe. It is quite possible that the findings of the CMA’s investigation could have an impact on the views of other regulators. 

In particular, Remedies 4-8 fall within the scope of the MiFID II regulation and cover matters in respect of which additional requirements may be imposed by EU Member States; as such they have to be notified to the European Commission, which will give rise to discussions within the network of European regulators.

In addition, it seems certain that private litigants, in the United States, for example, will be monitoring the investigation for indications about whether the industry’s structural characteristics have resulted in any competitive restraints for which redress could be considered or sought under the antitrust laws. Particular attention will be given to any specific practices identified as distortion of competition in the CMA’s Provisional Findings. 

A similarly expanding global impact has been observed in other recent investigations into other financial services markets, including foreign exchange and interest rate and commodities derivatives markets.


The implications of the CMA’s market investigation are wide ranging, and will very likely touch all those that are involved in the sector one way or another. If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers or your usual Morgan Lewis contact:

Frances Murphy
Chris Warren Smith
Omar Shah

Christina Renner

Washington, DC 
Jon Roellke