On 14 September, the Financial Conduct Authority (FCA) announced its final decision to make a Market Investigation Reference (MIR) to the Competition and Markets Authority (CMA) in relation to investment consultancy and fiduciary management services. This is the first time that the FCA has made such a reference to the CMA. The statutory deadline for the investigation is 13 March 2019.

Investment consultants often provide pension funds, charities, endowment funds and insurers with advice on which asset classes to invest in and recommendations on the best fund managers to use. They can also manage assets for the clients they advise through fiduciary management services. The FCA has identified four key features of this market that give rise to concern. In particular, the FCA has highlighted the potential for conflicts of interest as a significant area for review.

The CMA will now carry out an in-depth investigation and has proposed to focus on investment consultants' services to pension funds. On 21 September, it published a statement of issues, setting out the scope of its investigation and inviting the submission of evidence and feedback in relation to a series of hypothetical remedies. Should the CMA find adverse effects on competition following its investigation, its powers are far-ranging and, as set out in its report, could include remedies that address the structure of the market directly (e.g. through divestiture or vertical separation) or the behaviour of the market (e.g. through regulating outcomes or improving transparency). The CMA’s report has already highlighted that measures to improve transparency over fees and performance are likely to be of particular focus in its thinking on remedies.

In this briefing, we provide an overview of what a MIR is, the concerns raised by the FCA, the implications for firms and what to expect next.


In the Asset Management Market Study Interim Report, the FCA announced a provisional decision to make a MIR. In response, the three largest investment consultants, representing at least 56% of the market, offered the FCA a package of undertakings in lieu (UIL) to address the FCA’s concerns. Alongside the Asset Management Market Study Final Report, published in June 2017, the FCA announced a provisional view to reject the UIL. On 14 September, the FCA confirmed its decision to reject the UIL and make a MIR to the CMA.

What is a MIR?

A market investigation involves in-depth review of a particular market by the CMA. The FCA has the power to make a MIR when it has reasonable grounds to suspect that any features of a financial services market prevent, restrict or distort competition in connection with the supply or acquisition of those services in the UK. This is known as “the reference test”.

Specific CMA guidelines should also be considered by the FCA in connection with a decision to make a MIR. In reviewing these, the FCA concluded that the size of the investment consultancy and fiduciary services markets, the proportion of the markets likely to be affected by the market features (detailed in this note further below, under “what are the FCA’s specific concerns?”) and the persistence of the suspected features, were each reasonable grounds for suspecting detriment to investors.

Why are investment consultants' significant?

On the significance of this market, the FCA highlights that twelve of the largest investment consultants potentially affect the management of £1.6 trillion of consumers’ pension assets and other client assets. Importantly, UK pension funds are the largest institutional client type of investment consultants and almost all Defined Benefit (DB) schemes take strategic investment advice from investment consultants.

What are the FCA’s specific concerns?

The FCA identified the following market features which, in its assessment, justified its decision to make a MIR.

  1. A weak demand side: 
    • Trustees of many pension schemes often have limited or variable investment experience together with limited resources, resulting in a high dependency on investment consultants.
    • Trustees often find it difficult to assess the quality of advice provided by investment consultants and the services of fiduciary managers. The FCA concluded that it is difficult for institutional investors to assess whether good performance is achieved as a result of high quality advice on asset allocation or simply down to other factors e.g. “luck”.
    • This is exacerbated by limited availability of transparent and comparable data on performance. Here the FCA considers more can be done in fiduciary management especially where it thinks fees tend to be “most unclear” owing to a lack of publically available, comparable information on fiduciary managers.
    • Switching rates are low: results from an FCA survey revealed that 91% of respondents had not switched in the last 5 years.
  2. Relatively high levels of concentration and relatively stable market share among consultants. The FCA found that the largest three firms together hold between 50-80% market share. It concluded that competition may not be working effectively.
  3. Barriers to expansion, which particularly restrict smaller, newer consultants from developing their business outside niche, specialist areas. The FCA found that trustees often select firms based on “well-known names” and that investment consultants do not appear to compete principally on quality of advice, but on relationships and brand.
  4. Vertically integrated business models create conflicts of interest. Here, the FCA cited the following areas of concern:
    • The recommendation of an investment consultants’ own products or services above other, potentially more appropriate options elsewhere.
    • The incentives that investment consultants have to provide complex advice to trustees to meet sales targets.
    • Conflicts of interest arising from gifts and hospitality from asset managers, where consultants provide asset manager ratings and recommend services to clients.
    • Potential conflicts in relation to the revenues investment consultants earn from asset managers where a consultancy recommends asset managers to clients or provides ratings, while at the same time providing consultancy services to asset managers.

Implications for Firms

This is yet another striking example of the FCA exercising its far reaching scrutiny and competition powers (see our previous briefings on the Asset Management Market Study, costs and charges, and prompts in the annuities market for more examples). In short, the FCA’s competition programme shows every sign of gathering momentum.

The issues highlighted in the FCA report echo those cited in the Asset Management Market Study, or those intended to be addressed through investor protection rules e.g. MiFID II. The FCA is using the tools it has available to bring the regulation of investment consultants into line with reforms being introduced to the supervision of other market participants. These include greater transparency around fees, greater scrutiny of whether value for money is being provided, and mitigating the potential for conflicts of interest.

In addition to a MIR, the FCA is recommending to the Treasury an extension of its (the FCA’s) regulatory perimeter, so that it can regulate asset allocation advice. All firms should take note. The treatment of certain types of institutional investors attract FCA scrutiny in a similar way as might more typically be the case for retail investors. For example, the Asset Management Market Study findings highlighted that some institutional investors (typically pension funds) “find it harder to negotiate with asset managers”. This is noticeably an area that is on the FCA’s radar.

Investment consultants clearly need to prepare against the possibility of major changes ahead. In the medium term, moreover, other jurisdictions (particularly those which mandate the use of consultants) may also examine the CMA’s findings closely and assess whether they should take similar action, should any remedies be proposed. We recommend that firms monitor developments carefully – including any decision taken by the Treasury regarding the FCA’s regulatory perimeter – and consider responding to any consultations.


Andrew Bulley

Andrew Bulley - Partner, Centre for Regulatory Strategy, Deloitte

Andrew Bulley joined Deloitte in October 2016 from the Bank of England, where he was, most recently, the Director of Life Insurance Supervision.  Between 2014 and 2016 he was a UK voting member of the Board of Supervisors of the European Insurance and Occupational Pensions Authority (“EIOPA”).  In a career with the Bank of England and Financial Services Authority stretching over 27 years, Andrew has held senior roles in the supervision of life and general insurers, the London wholesale insurance underwriting and broking markets, retail and investment banks, asset managers, and IFAs.

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Tony Gaughan

Tony Gaughan - Partner, Consulting, Deloitte

Tony is the UK Investment Management & Wealth sector Leader. He works with global investment management, asset servicing and wealth clients across strategy, distribution and operations. He has eighteen years’ industry experience, including holding senior distribution and operations roles at investment firms in Europe and Asia and has held Financial Conduct Authority controlled functions.  Tony holds professional qualifications in investment compliance, risk and investments, and is a Chartered Fellow of the Chartered Institute of Securities & Investment.

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Sherine El-Sayed

Sherine El-Sayed - Manager, Centre for Regulatory Strategy, Deloitte

Sherine focuses on conduct regulation in financial services. Before joining Deloitte, she worked at the Financial Markets Law Committee where she examined issues of legal uncertainty affecting wholesale financial markets.

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