In denial and in disgust – investment consultants and the FCA.


I went to the Vuelio blogger awards last night, which was fun, young, female and loud. I learned that I am unusual in not making money out of my blog and that I could make this a mobile advertising platform for everybody. So you know, I have yet to take one penny from this blog and have no intention of doing so. The pleasure of not having to worry about conflicts of interests outweighs whatever I could coin from advertorial.

No sooner has the phrase “conflicts of interest” appeared on my screen then my mind is strangely distracted by investment consultants -specifically their reaction to the demolition job delivered on them collectively by the FCA in last week’s Asset Management Market Study.

Helen Morrison, writing her “editor’s view” in Professional Pensions , puzzles over a “market that just isn’t working”. It is indeed a puzzle. If you want a truly impartial view of why Aon, Mercer and WTW own 60% of the investment consulting market ask an investment consultant! Here’s Tim Giles of Aon.

“We make up a large part of the consulting market but we are in this position because people want to work with us. There are a large number of companies operating within this area and there are no real barriers to clients moving if they wish to”.

As I work for one of those companies working “within this area” let me explain why it is no good coming to us if you are a trustee

  1. You won’t get a corporate headquarters in the Cheese Grater at £100+ a square foot
  2. You won’t get lavish client parties
  3. You won’t get a champagne soaked stand at every investment conference you go to
  4. You won’t get fiduciary management
  5. You won’t get manager of manager funds
  6. You won’t get a vertically integrated master trust
  7. You won’t be recommended active funds when passive funds will do
  8. You won’t get price negotiation on the funds you buy
  9. You won’t get a proper analysis of the hidden costs and charges within your fund
  10. You won’t get a massive bill for not very much

Helen Morrison archly remarks

Apparently the key stumbling block is the time taken to find a new provider. However, those investors who did consider switching but decided not to, often said they could not find a good alternative provider.

It’s not that First Actuarial can’t compete, we simply don’t want to compete. If you are looking for 1-10 above – stick with the big three. They offer you the equivalent of a fully monetised blog, you’ll have a lovely time and end up skint!

In disgust

There is very little real debate among asset managers and investment consultants about this paper. I spent a part of a day last week at the Aberdeen Asset Management Conference where the audience appeared to be investment consultants and wealth managers. Not only did the conference agenda not address the FCA market study, but no one I spoke to seemed even to have read it!

The status quo is far too rosy to allow some criticism from a bunch of lawyers in Canary Wharf to spoil the party (see 1-10 above). But here is the point, the solution to the problems set out in such detail by the FCA do not lie with the all-knowing investment consultants, the solution is likely to lie with the Competition and Markets Authority who might take a slightly different views to (1-10 above) than those who use them to maintain the status quo.

Rory Percival, who when at the FCA was vocal about retail investment advice , has no problem expressing the views of his former colleagues..

He told  Money Marketing:

“No advisers really compete on price. Advisers and consumers are completely non-price sensitive around investment and pensions.

“From an economic sense, they need to be the buyers on the clients’ behalf so they need to do that thinking about cost and providing competitive pressures on costs and that is a kind of mindset that I don’t think necessarily all advisers are tuned to.”

The harsh truth is that we as consumers are bad buyers (see OFT on pensions 2014). Advisers are only too ready to exploit this. The exploitation of bad purchasing increases exponentially when it is other people’s money that is being taxed by high charges and costs.

The abnegation of responsibility for the value of “other people’s money” by investment consultants and wealth managers is often truly disgusting.


In denial

When you are in a successful business – such as those of the big investment consultants and the large asset managers, it is hard to see how disgusting things are for those “other people” who own the money.

I recently saw an investment recommendation from one of the big three consultants that was so expensive -everyone, actuaries, trustees and the employer who ultimately picked up the bill, threw up their hands in despair. But the bill will be paid, because the client is global and the agreement with the consultant is global. But the pension scheme is in deficit and the employer could easily be pre-packed into administration and the pension passed to the PPF. No part of the deficit will ever be attributed to the investment consultant’s fees, the trustees, actuaries and the employer were powerless to resist.

The reasonable people who run Mercer, Aon and WTW do not know life at this kind of level. They have long since handed in their scheme actuary certificates and don’t do much more than review the level of billings of their various offices and departments as part of their reporting. The owners of the money are now so distant from the people who manage the strategy that governs how they are treated , that these consultancy owners can remain entirely in denial.

They are in denial about us too. They have no idea that we have offices on the edges of unfashionable towns like Basingstoke and Peterborough, we have hard-working people who often charge less than a third we see for similar work from the big three. They forget that for our clients, a party is in a pub and that we’ll  share the cost of the round.

We do exist, we don’t compete, we don’t want to compete.

We are waiting.


In disgust




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to In denial and in disgust – investment consultants and the FCA.

  1. Con Keating says:

    The quotation from Tim Giles obscures a significant part of the problem, which is that it is required by statute to retain an investment advisor. It is not so much that clients want to work with consultants but that they have to work with one or another. This needs to be changed.
    The consultancy business model is riddled with conflicts. Fiduciary versus consulting is one recent aspect but the far older one is the “consultancy” offered to fund managers. Back in the 1980s when a fund manager I was expressly told by one leading consultancy that if I did not retain their services to “develop my marketing”, then I would be excluded from their recommended lists: “Don’t think about not making long lists, or short lists, or beauty parades, and dream on when it comes to winning any mandates; you won’t exist as far as our clients are concerned.”

  2. Doug says:

    It is hard for the little guy but it is worth reminding your clients that someone did, in the end, get fired for buying IBM (their PC business went to Dell and Asia). It is, after all, the job of trustees to be parsimonious with their scheme members’ money.

  3. henry tapper says:

    I’d change “parsimonious with” to “parsimonious for!”

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