The Competition and Markets Authority (CMA) has launched a market investigation into investment consultancy and fiduciary management services.

The CMA's decision to launch a full market investigation, which could last up to 18 months, is based on a recommendation made by the Financial Conduct Authority (FCA) following its own Asset Management Market Study.

Why is the CMA carrying out this investigation?

The FCA's Asset Management Market Study indicated that certain aspects of the asset management sector, in particular in relation to investment consultants, may be harming market competition:

  • Buyers of investment consultancy and fiduciary management services (typically trustees of pension funds) often lack the necessary knowledge to judge the quality and value for money of those services. Demand side competition is therefore weak and switching rates are low.
  • There may be barriers to expansion restricting smaller, newer consultants from developing market share. The FCA has noted relatively high levels of concentration within the investment consultancy market, with three firms accounting for around 60% of market share.
  • There is a potential for conflicts of interest for vertically integrated investment consultants. For example, investment consultants that also provide fiduciary management services may recommend their own fiduciary management services ahead of those of a competitor regardless of whether or not those services are the most appropriate for the customer.

The FCA's full decision setting out its reasons for making a Market Investigation Reference (MIR) to the CMA can be found here.

The CMA will carry out its own research to consider the adverse effects on competition in this sector. This will include (but is not limited to) the issues outlined in the FCA's MIR.

How does this affect you?

The CMA market investigation will involve gathering a large amount of information from investment consultancies and other stakeholders, and running a bespoke market survey. The CMA will engage directly with key market participants and undertake significant economic analysis before coming to its conclusions.

The CMA has a wide range of powers at its disposal under the Enterprise Act 2002 to address any adverse effects on competition that it may find during the market investigation. These include potentially onerous structural remedies, such as divestment of businesses or assets. It can also impose behavioural remedies, for example by banning certain types conduct, or by making other activities mandatory.

The CMA must conclude its investigation by 13 March 2019. It has already contacted key market participants and intends to publish an issues statement in due course, which will set out the proposed scope of its investigation.