Firms which advise pension funds on their investment decisions will be put under the microscope by the competition authorities, after the UK's financial watchdog claimed the sector was too opaque.
The Competition and Markets Authority (CMA) will be looking at whether difficulties in customers' ability to compare and switch investment consultants means the advisers have little incentive to compete for customers.
It will also examine whether the broad array of services offered by consultants means there are conflicts of interest which reduce quality or value for money, and whether the dominance of some large players creates barriers to entry for new advisers which discourages competition.
“It is extremely important that the investment consultancy sector works effectively for its clients, which include many of the UK’s biggest pension funds, and we want to ensure we are looking at the right issues. That is why we are urging people to get in touch if they have any evidence to share or views about whether these are the correct areas for us to be investigating,” said the investigation's chair John Wotton, a consultant at law firm Allen & Overy.
The Financial Conduct Authority referred investment consultants to the CMA for an investigation earlier this month, in the first decision of its kind.
It has concerns that three large players – Aon Hewitt, Mercer and Willis Towers Watson – hold an excessive market share between them, at 50-80 per cent.
Up to £1.6 trillion of assets are affected by the advice of the twelve largest investment consultancies, according to the FCA's research.