Investment consultants to face questions about conflicts of interests
British pensions minister Torsten Bell is worried about conflicts of interest in the professional trustee and investment consultants markets (Pensions UK)
Is the UK market for investment consultants and trustees set up properly to avoid conflicts of interest?
This is a question the British pensions minister Torsten Bell says he wants to answer.
It is actually a question several people have asked at several points over several years - notably, the investment consultancy space was brought into the spotlight by the liability-driven investment crisis of 2022 following the Liz Truss “mini” Budget.
But has pension consolidation finally brought about action?
Our readers will not need reminding of how concentrated the market is.
In 2018 the Competition & Markets Authority found three firms - Aon, Mercer and WTW - controlled up to 50 per cent of the UK market. To be fair, the CMA found the investment consultant market was not highly concentrated but it found other features which hindered competition such as a lack of clear and comparable information on value for money.
Research by LCP shows four trustee firms look after about 80 per cent of pension schemes.
Speaking at the Pensions UK conference last week, Bell said: “The growth of sole trustees also means decision making is sitting in fewer hands. Are we sure this is always optimal?
“Similarly with consultants, where a small number are supporting a concentrated set of professional trustee firms.”
Bell said the Department for Work & Pensions would consult on this issue later this year.
Speaking to AOX after his speech, Bell said: “What’s happening here is obviously the pensions market itself is changing and getting more consolidated. That’s important because of the risk being concentrated but also it is more complicated to run a very, very large scheme.
“That world is changing, and then the market to serve that is also changing. I think it is right that we are paying attention to that and specifically raising the question of whether we are doing everything we can to avoid conflicts of interest.”
Joe Dabrowski, deputy director of policy at Pensions UK, agreed this issue needed to be addressed.
He said there was now anecdotal evidence that some investment consultants were only shortlisting master trusts above a certain size because of concerns they might fail the scale test and be consolidated away.
Dabrowski said: “If you do that, you are restricting the growth of the market at the mid and lower size.
“We think that’s sensible because you see a lot of risk with concentration and the challenges with getting enough variety of advice.
“You can wear your professional hat in different ways but there are potential conflicts of interest.”
He said Pensions UK would support investment consultants being under some sort of regulatory regime, and increased transparency for trustees so it would be possible to know who each trustee was working with.
