CA Summit: CMA probe ‘to shake up master trust market’

The FCA’s referral of investment consultants to the Competition and Markets Authority (CMA) should be welcomed as it could shake up the master trust market and force increased competitive tendering for mandates currently held by the big three EBCs, delegates at the Corporate Adviser Summit heard yesterday. By John Lappin

Philip Smith, Richard Butcher and Andy Cheseldine

In an animated session on the FCA’s asset management market study, PwC DC pensions and benefits leader Philip Smith DC welcomed the market referral saying: “If you are sitting there in a crowded master trust market, you would ask why are the big three launching master trust products into that market? The only conclusion you can draw is they want to become vertically integrated providers providing consulting, fiduciary management and products.”

Capital Cranfield client director Andrew Cheseldine said: “It is noticeable the FCA document didn’t focus on master trusts but the CMA was specific and said the FCA didn’t focus on this, but we are going to. I would assume that they are going to take action.”

In September the FCA decided to refer the investment consultancy and fiduciary management sector to the CMA, rejecting undertakings in lieu made by Aon, Mercer and Willis Towers Watson. The CMA will now begin a market investigation into the supply and acquisition of investment consultancy services and fiduciary management services.

Smith expressed cynicism about recommendations made by the investment consultancy arms of vertical firms.

“Whilst one would like to believe that the consulting arms make the best market recommendations, I don’t think that is always necessarily the case. In the document they put forward to the FCA, one of the mitigations was that they only be allowed to refer not recommend products. I have seen examples of clients where products have been referred and bought without any oversight from the person buying it. The CMA referral is a good idea. It will help change the market and make it more transparent and cleaner for everyone,” he said.

PTL managing director and PLSA chair elect Richard Butcher added: “The fiduciary management market has a number of elements in it which are dysfunctional. Apart from anything else, there is no standard definition and the buyer has to beware in a market that is very complicated – not a satisfactory state of affairs.

“Where you see the vast majority go to the incumbent investment consultant it has got to ring alarm bells. It is a good referral. It will result in changes for the big three and others. They are going to have to change their product offering, but it is going to make them better providers.”

Transparency Task Force founding chair Andy Agathangelou suggested that had the undertakings in lieu from the big three consultancies been made five years ago, they may well have been accepted.

He added: “The confidence in the industry to self regulate and for commercial entities to drive upward progress in professionalisation, that confidence has all gone. The market study was so critical of the workings of the asset management industry that it would have been pretty much impossible for any regulator or indeed the Government to place responsibility on the commercial entities involved in it to change things. It has become so apparent that commercial pensions are always about driving shareholder value and profitability and are at loggerheads with looking after the consumer properly. I think that fault line has become crystal clear. The regulator is now taking full responsibility for regulating the industry.”