Ben Gold, Head of Pension Investment, Xafinity said: “Xafinity welcomes and supports the conclusions in relation to the work of investment consultants contained in the FCA's Asset Management Market Study published in June. We share the concerns of the FCA regarding investment consultancy and the market for fiduciary management. There is a concentrated market which is characterised by low switching levels and inherent conflicts of interest. A full review will likely lead to better outcomes for schemes and ultimately their members.
“The proposals within the UILs to the disclosure of fees and costs for fiduciary management solutions for prospects looks like a reasonable start point to us but we’d like to see the fees paid to underlying managers split out manager by manager. This would enable a transparent assessment of where the fiduciary manager has used their scale to drive down costs.
“We believe for any scheme considering taking fiduciary management services independent advice should be sought. We also believe that schemes should be required to take independent advice on funds operated or managed by investment consultants.
“Xafinity agree that there should be a more general increase in the regulation of the work carried out by investment consultants, provided that it does not disproportionately increase the cost burden faced by pension schemes, particularly smaller schemes. The FCA’s aim is to ensure the markets work well and investors receive value for money.
We fundamentally believe that the client must be at the heart of all pension scheme advice. We fully support actions that will improve our industry and the outcomes for pension schemes.
”Xafinity wholly supports the aims of removing conflicts of interest in the industry, restoring savers’ trust in asset management and ensuring pension schemes receive high quality advice. We believe that increased competition amongst investment consulting firms will only be beneficial to schemes and their members.”
Ben added: “We are supportive of the concept of mandatory retendering of investment consultancy appointments. This does not mean that a scheme has to change advisor, but it does have to undertake a genuinely competitive tender process. We would favour mandatory retendering every 5 years but the burden on schemes arising from this should not be too onerous or costly. However, it should be recognised that the investment consultant can be very influential to the outcome the scheme achieves in terms of funding and risk.
“One concern we do have is that the disclosure of performance in active manager recommendations could adversely affect investment consultant behaviour. The performance analysis proposed could lead to a greater churn in ratings which in turn could lead to investment consultants recommending clients change active managers frequently.”
Ben concluded: “We fully support the FCA and their aspirations highlighted through the Asset Management Market Study. There is a fantastic opportunity to drive bold changes through our industry for the good of pension schemes, trustees and our clients. We hope this opportunity is taken.”
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