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The CMA's Final Decision Report

  • United Kingdom
  • Competition, EU and Trade
  • Pensions


Executive summary 

On Wednesday 12 December 2018 the Competition and Markets Authority (CMA) published its Final Decision Report on its market investigation into the supply and acquisition of investment consulting (IC) and fiduciary management (FM) services. This followed a period of consultation and reflection subsequent to the publication (on 18 July 2018) of the CMA’s Provisional Decision Report (for our Speedbrief on which, just click here).

The Final Decision Report runs to 440 pages (more than 600 adding in the Glossary and Appendices) and sets out the CMA’s final decision based on an extensive investigation that began with a reference from the Financial Conduct Authority under the Enterprise Act 2002 on 14 September 2017.

The CMA decides, in its final report, that there are competition issues in both the IC and FM markets, with greater concerns arising in relation to the FM market.  The CMA has therefore decided to make orders introducing a number of remedies intended to address these issues in a proportionate way. The remedies set out in the Final Decision Report are largely either carried forward or strengthened versions of the remedies set out in the Provisional Decision Report in July.

Accordingly, the final remedies do not include any of the more drastic, structural remedies the CMA had said it was considering earlier in its investigative process (such as forcing the division of “integrated” firms providing both IC-FM services). Instead, the remedies focus on engaging and empowering the “buy” side of the IC and FM markets (90% of which, by revenue, comprises pension scheme trustees) by furnishing them with the processes and information the CMA feels they need to make the most effective decisions.

Context and process

In June 2017, the FCA published the Final Report in its asset management market study and, following a period of consultation, announced it had decided to refer the supply and acquisition of IC and FM services to the CMA for a formal market investigation.

The purpose of a market investigation is to determine whether any feature or combination of features of a particular market prevents, restricts or distorts competition in connection with the supply or acquisition of goods or services in the UK – that is, whether they lead to an adverse effect on competition. If such an effect is found, the CMA is empowered to decide whether remedial action needs to be taken and, if so, to identify effective and proportionate remedies.

The CMA’s investigation of the IC and FM sectors started with the publication of its Statement of Issues on 21 September 2017. This was followed by a phase of reviewing responses to the Issues Statement and other initial submissions, appointing a third party to carry out a survey of occupational pension scheme trustees (the Results of which were published on 29 March 2018), and a series of hearings with IC and FM providers and others including pension scheme trustees and in-house investment staff.

Once this fact-finding phase of investigative work had been completed, the CMA then prepared, and issued for consultation, a number of working papers setting out its “emerging” findings and the remedies it was considering where it felt measures were required. IC and FM providers were invited to make submissions on these working papers and a number of providers did so prior to the CMA publishing its Provisional Decision Report.

After publication on 18 July 2018, the Provisional Decision Report was consulted on over the remainder of the summer and autumn (with response hearings being held with a number of interested participants in each market). This final phase of consultation included the publication of two further working papers by the CMA which were also commented on by interested parties before the Final Decision Report was issued on 12 December 2018 around 18 months after the CMA’s in-depth process first began.

The CMA’s findings

After gathering and analysing a vast amount of quantitative and qualitative data, and concluding a detailed, consultative and transparent investigation, the CMA has identified the following concerns with the IC and FM markets.

In the IC market:

  • there is a low level of engagement by some trustees in choosing and monitoring their provider;
  • there are insufficiently clear objectives against which trustees can measure the performance of IC providers; and
  • trustees are not given sufficient clarity on fees or enough information to evaluate the quality of their existing IC.

Individually, and in any combination, the above make it difficult for trustees to determine whether they would be better off using an alternative provider.

In the FM market:

  • integrated IC-FM firms tend to steer their IC-only customers towards their own FM service;
  • there is a low level of trustee engagement at the point of first moving into FM;
  • there is a lack of clear and comparable information for trustees to assess the value for money of potential FM providers;
  • there is a lack of clear and comparable information for trustees to assess the value for money of their existing FM provider; and
  • there are barriers to switching FM provider, including relatively high costs.

The first three of these features prevent, restrict or distort competition at the point FM services are first purchased, meaning some trustees use their incumbent IC firm for FM even if a better deal on FM is available elsewhere. The last three prevent, restrict or distort competition once FM services have been purchased, depressing switching rates.

In conclusion:

The CMA has found these features of the IC and FM markets reduce (a) the ability of trustees (and other purchasers of the services) to drive competition between IC and FM providers, and (b) the incentives for IC and FM providers to compete with one another on fees and/or quality. The CMA expects this to result in substantial customer detriment in both markets, as manifested through trustees paying higher prices and/or receiving lower quality services. It has therefore found adverse effects on competition in both markets.

The CMA’s remedies

Having reached these conclusions, the CMA has decided that the remedies summarised in the table below will come into effect during the course of 2019.

For the FM market
  1. A requirement for trustees to carry out a competitive tender before awarding a fiduciary management mandate of 20% or more of their scheme assets for the first time (or extending an existing mandate into this range). If trustees have already delegated this level of scheme assets to an FM provider, but did not carry out a competitive tender when doing so, they must do so within five years (or within two years of the CMA order if the mandate is already more than five years old). A “closed” tender will be sufficient if at least three unrelated firms are invited to participate. FM firms will be prohibited from accepting a mandate from trustees subject to this obligation unless the trustees have confirmed the mandate was competitively tendered.

  2. A requirement for integrated IC-FM firms to separate their marketing of FM from their provision of IC advice, to identify the marketing of FM as such and to remind trustees of their duty to tender for this service in certain cases.

  3. A formal recommendation to tPR to develop enhanced guidance for trustees on conducting competitive tender processes for FM services.

  4. A requirement for FM providers to disaggregate fees for current customers, including providing enhanced disclosure of underlying investment fees.

  5. A requirement for FM providers to provide more information about their fees to prospective customers, including costs relating to transitioning into, and exiting from, FM.

  6. A requirement for FM providers to report their performance track-record to prospective customers using a standardised method.

For the IC market
  1. A requirement for pension scheme trustees to set strategic objectives for their investment consultant so they are able to judge the quality of the services provided.

  2. A requirement for investment consultants to report the performance of any recommended asset management products, and their own investment products, to an agreed set of standards where reporting is not already covered by other regulatory requirements.
Supporting recommendations
  1. HM Treasury should pass the necessary legislation to extend the FCA’s regulatory perimeter to include all of the main activities of investment consultants.
  2. TPR should develop guidance to support trustees in asking for, and using, the enhanced information they will be able to access as a result of the CMA’s package of remedies.

  3. The FCA should maintain oversight of the transparency of asset management fee reporting to ensure the progress made by the Institutional Disclosure Working Group is sustained.

  4. The DWP should pass the legislation needed to enable tPR to oversee the remedies that impose requirements on trustees.

Stepping back, and particularly thinking about the proportionality of its remedies, the CMA says “IC and FM providers influence decisions affecting at least £1.6 trillion of pension scheme assets and even small improvements in quality of these services or reductions in price will produce substantial benefits which will likely increase over time.  In comparison, the likely cost of our remedies is small".

Timescale for implementation

The CMA is under a statutory obligation to publish orders implementing the remedies set out in its Final Decision Report within six months of its report (so by 12 June 2019 at the latest). The wording of the orders is then subject to consultation before the orders are finalised. The CMA is planning for the orders to require compliance with its remedies within, in general, six months from the date the orders are made (so by 12 December 2019 at the latest).

However, current indications appear to be that the CMA is minded to make the necessary orders in fairly short order (so before 12 June 2019) and that could mean the effective date for compliance comes forward from the winter of 2019 to the autumn or even summer.


It is a common misconception that the CMA’s work applies only to the purchase of fiduciary management services. While the FM market certainly is the main focus of both the findings of adverse competition effects and the remedial package, trustees need to take care to ensure they are considering the findings and remedies applicable to investment consultancy services too.

For trustees who are either considering moving into FM for all or at least 20% of their portfolio (including where they are extending an existing non-tendered mandate to beyond 20%), and trustees who have previously moved into FM for all or at least 20% of their portfolio without conducting a competitive tender, the requirements to run a process involving at least three unrelated FM providers will apply. Trustees in this situation will be well advised to keep an eye out for the guidance the Pensions Regulator will be preparing next year on running such tenders.

All in all, the CMA’s remedies are notable for focusing more on the steps to be taken by the purchasers of IC and FM services (mainly pension scheme trustees), the regulators of those trustees and the regulators of IC and FM firms, than the steps to be taken by the providers themselves. This is because the CMA feels greater engagement on the buy-side of each market will go a long way to addressing the competition concerns it has identified. It will therefore be incumbent on trustees to ensure they are asking the right questions, analysing the information they receive and actively reviewing their providers.