The CMA’s “remedies” – an opportunity blown.

I had rather lost touch with the progress of the CMA’s investigation into the activities of investment consultants , frankly it doesn’t seem to have been on anyone’s radar recently so the investment consultants have clearly done a good job defusing the bombs planted by the FCA’s Asset Management Market Study.

My simple conclusions from re-reading the FCA’s work were

  1. Asset managers are only giving value for money when pushed
  2. Investment consultants are giving them too easy a ride and allowing their clients (trustees) to pay well over the top.

The simple rules surrounding commerce is that sellers will achieve whatever margin they can for their products and – unless buyers object – keep as much of the value from their customer’s money – as they can.

Sadly for asset managers and happily for customers, we operate  a reasonably competitive market for institutional DC services but for retail and institutional fund purchases, asset managers are getting away with blue murder.

Screenshot 2019-07-23 at 09.12.53

I put these numbers to the CMA at the Transparency Task Force “Remedies” symposium.

The CMA didn’t seem aware of the numbers (despite them being in the FCA’s report). Sadly, bringing the margins for defined benefit management down in line with Defined Contribution margins was not a CMA objective.

The only objective the CMA has , following its exhaustive study, is to implement its order.

I have to say, the CMA’s order is a pretty small return on the capital employed in its market study. I’m not surprised that I lost interest in their activities – they were clearly nobbled by the asset management and investment consultancy lobbies.

Business as usual on the gravy train

So the gravy train rolls on, there may be a little more scrutiny of fiduciary management mandates but the central question of whether trustee’s buying behaviour is improving and whether investment consultants have an eye for value and money remains unanswered.

I had wanted to ask questions at the meeting about NDAs and value assessments, but there was little space to do so. The bulk of the meeting was taken up with procedural discussions between experts keen to show themselves more virtuous than each other.

The hard meaningful questions were clearly not going to be asked. When I broached the question about DB and DC margins, I felt like the man who farted in a crowded lift.

The gravy train has not been derailed by the CMA or the FCA, the flaccid Pensions Regulator is now in charge of writing some rules around the Order , after which everyone can relax and luxuriate.

How do DB trustees get value for money?

The simple answer is by disintermediating. 

They must stop going to industry jamborees like PLSA conferences and Mallowstreet dinners, they need to focus on getting costs down not extending the remit of asset management marketing departments.

They must start employing investment consultants who act like brokers, securing best prices in a fair and competitive market. That means they must stop signing IMAs that include NDAs and start looking at what is available elsewhere – an exercise known as “benchmarking”.

If their intermediaries, the investment consultants won’t broke on price, they should start using fund platforms like AMX and Mobius that will.

Finally, if trustees cannot understand the value of a fund, they should not buy it. The benchmark for straightforward equity and bond management is 0% pa charge (if you allow some leakage of value for stock lending and so on). The total cost of ownership of a passive fund should only exceed 0% if there is a value add.

There are many good reasons for paying for value adds – mostly to do with ESG, but each basis point accorded an asset manager for running a fund should be accounted for by way of anticipated value and monitored accordingly.

That’s how fiduciaries get value for money and it is exactly the same when the investment management agreement is with a fiduciary managers as directly with trustees.

I would like to say things are getting better but…

The marketing departments of asset managers like to tell you that they are being squeezed but I see no sign of that. I work opposite Schroders swanky new London Wall HQ and peer into their in-house gym and subsidised restaurant.

I don’t see any signs of asset managers taking a haircut in their margins. I see plenty of evidence of them finding new ways to cut the cake, but the slices aren’t getting smaller.

vertical horizontal

Fiduciary management returns us to the days when DB schemes were run by insurance companies and trustees were presented with a bill each year by way of a premium. While we might not think of the major consultancies (who dominate the market) as insurers, they appear to behave in precisely the same way.

The CMA’s Order – as it was explained to me yesterday – seems to do nothing to stop DB mis-management. There is no plan to improve value for money and the value assessments that are being introduced are an extension of the waffle that characterised most of the discussion at the TTF yesterday.

Things are not getting better, the asset management market study was a brave piece of work that could have ended up with a better funds industry , better consultants and with asset managers managing assets , not client jamborees.

Instead it has fizzled out in the CMA Order, which is the dampest of squibs and the FCA’s PS19/4 which does no more than address the disclosure of fund objectives.

Things are not getting better, a once in a generation chance has been missed and the remedies of the CMA’s Order and FCAs policy statement are frankly very disappointing.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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