KPMG’s Anthony Webb: How trustees should respond to the asset management market study

KPMG’s 2015 UK Fiduciary Management Market Study shaped FCA thinking on its investigation of investment consultants. Its author, KPMG head of fiduciary management, investment advisory Anthony Webb spells out what the FCA’s asset management market study should mean for trustees

The asset management market study looked at the whole investment chain and saw things that it did not like all along the journey. Nobody emerged with any praise.

Fiduciary managers are in an unusual place in that they provide almost the entire span of services from the consumer to the producer. So each of the issues in the asset management market study affects fiduciary managers. To that extent the FCA’s review is therefore more relevant to fiduciary managers than anyone else.

The primary concern of the FCA is that consumers, in this case pension schemes and trustees, have enough information and transparency to make clear choices. That covers a number of areas, but one of the key challenges is that it is quite difficult to tell what your options are if you are using a fiduciary manager.
When you shop on the internet it is easy to source product recommendations that are similar to the one you are buying. That makes for a competitive market.

The FCA’s problem is that when it comes to fiduciary managers there is little opportunity for such comparison. It is difficult to assess whether pricing is fair, partly because there is no public pricing and partly because there is no equivalent of the online reviews. It is extremely hard to know whether other people have had a good or bad experience with a particular fiduciary manager.
The FCA has proposed that the questions raised should go to the Competition and Markets Authority and the majority of people in the sector now expect that to happen. A CMA investigation would take a couple of years and action maybe then taken.

Clearly the regulator has a role in making sure there is a level playing for field for everyone. But we think there is more to it that. Firstly we think pension schemes need a reference process to keep an eye on fiduciary managers. Secondly, trustees don’t need to wait until the outcome of the CMA investigation before they can start making things better. The FCA has already published a template setting out the right sort of questions to be asked of fiduciary managers. These are questions such as what are you trying to achieve, how much of a service are you getting, are you getting the most appropriate service and are you getting it at a fair price?

Fiduciary managers implement sophisticated and complex management strategies that may or may not be suitable for a particular scheme. For example if a scheme want stable asset strategy and doesn’t want a load of hedge funds, either because they don’t believe in them or because they are near fully funded and therefore don’t need to, they may wish to reconsider their approach.

The regulator has already helped shift the odds in the trustees favour, but it is still down to the trustees to decide if the price is right. For the moment it is now down to trustees to make the most of the work already done by the FCA.