FCA report criticised by investment consultants during CMA probe

05 December 2017 Consultancy.uk 4 min. read

The world’s biggest investment consultants are continueing their fight against a full-blown competition probe in the UK. Aon Hewitt, Willis Towers Watson and Mercer had all previously recommended competition rules to the country’s financial watchdog, but these were deemed too little too late. Following a stinging report on the state of competition in the industry, the three firms have now fired back at the Financial Conduct Authority (FCA), labelling its recommendations “inappropriate.”

In a report published in the summer, the FCA concluded that it was still concerned about conflicting interests within investment consulting – with a specific focus on conflicts that arise from investment consultancies offering both advice and fiduciary management. At the time the authors stated, “We have not received any evidence which has changed our view that the competitive process in the market for fiduciary management could be improved.”

The final report from the FCA’s ‘Asset Management Market Study’ recommended that the Treasury considers bringing investment consultancy services under its watch. The industry does not currently fall under their jurisdiction, with the asset allocation advice provided by investment consultants and employee benefit consultants considered to be self-regulating. Following the study, in September the FCA stated that it had “serious concerns” about the investment consultancy industry, and referred the sector to the UK antitrust authority of the Competition & Markets Authority (CMA) for a full-blown competition probe.

FCA report criticised by investment consultants during CMA probeThe sector’s three leading investment consultancies, Aon HewittWillis Towers Watson and Mercer, subsequently face speculation as to whether the Treasury will intervene in the future to break up their operations. The trio of firms had previously attempted to avoid this escalation by recommending a set of their own proposals to the FCA at the mid-point of the watch-dog’s study. While their recommendations were conditionally rejected, the firms still irked many smaller competitors as they refused to provide public details of the proposals to other companies, provoking unflattering comparisons from industry sources with ‘poachers turned gamekeepers.’

Now, the three firms have fired back at the FCA’s claims. In their response to the CMA, the Big Three denied there was any need to break up their businesses to foster competition, despite concerns that there is a conflict of interest when investment consultants offer investment management services through a service known as fiduciary management.

Willis Towers Watson (WTW) said, “Given the positive nature of competition in this market, WTW does not believe there can be any justification for a structural remedy splitting up the investment advisory and fiduciary management businesses."


In response to a call for evidence from the CMA, Willis Towers Watson further criticised the FCA’s market study, contending that some of its findings were “based on misconceptions”, while suggesting that its analysis about the value of manager selection advice provided by consultants was inclusive of “significant flaws”.

The firm said, “WTW strongly believes that investment consultancy is a market with demonstrable competitive characteristics, both for advisory services and fiduciary management. We face significant rivals in both areas.”

Mercer, which boasts £750 billion in assets under advice in the UK, claimed the FCA’s analysis of investment consultants formed part of a wider study of the asset management industry, and so it believed it would be “inappropriate for the CMA to attempt simply to update or extend the FCA’s work.”

Aon added, “The CMA will find that competition is far more dynamic and wide-ranging than the FCA market study indicated.”

Other members of the investment sector were more critical of investment consultants, however. The Pensions and Lifetime Savings Association, which at present represents 1,300 UK retirement funds with combined assets totalling £1 trillion, said that it welcomed the CMA’s investigation, following PLSA members having “persistently expressed concerns” regarding secretive practices and alleged conflicts of interests by the industry.