London’s top financial watchdog on Thursday stepped up a crackdown on the £1.6 trillion pensions advice industry over fears that the dominance of major players could hurt savers.
The Financial Conduct Authority said it has “serious concerns” about the sector and has referred the matter to the Competition and Markets Authority, the first time it has made such a strong move since it gained powers to do so two years ago.
Aon, Mercer and Willis Towers Watson dominate the sector, advising pension schemes, charities and endowment funds on their investment decisions. The three have a combined market share of between 50% and 80%, the FCA said.
The move is the latest attempt to get to grips with old-style City arrangements the watchdog and some top politicians regard as too cosy for the public good.
Christopher Woolard, the FCA’s executive director of strategy and competition, said: “We have serious concerns about this market and believe that the CMA is best-placed to undertake this work.”
That’s a blow to the big three, which worked hard behind the scenes to fend off a full competition inquiry. The watchdog said in November 2016 that it was considering referring the sector to the CMA.
A package of reforms offered by the big three was rejected by the FCA. It said pension trustees relied heavily on the big players but weren’t able to compare the quality of the advice. The regulator said it was also concerned about barriers restricting smaller, newer consultants from taking market share, and that “vertically integrated” business models were creating conflicts of interest.
Danny Vassiliades, managing director of Punter Southall Investment Consulting, which competes with the biggest three consultants, said the FCA’s referral was good for the industry.
“It cannot be right that the future direction, structure and regulation of our industry is driven by its participants. We look forward to the CMA’s findings in due course,” Vassiliades said.
The FCA has the power to involve the CMA when it has “reasonable grounds to suspect that any features of a financial services market prevent, restrict or distort competition”.
Woolard added: “Investment consultancy services play a significant role advising pension fund trustees when they are procuring asset management services. It is important that trustees can be confident they are getting good quality advice and value for money from their investment consultants.”
The FCA is already in well-advanced plans to shake up the £7 trillion investment management sector, forcing it to charge a simple “all-in” fee for its services. The fund industry has been fighting back against this move.
Aon, Mercer and Willis Towers Watson did not comment.