Pension plan trustees appointing a fiduciary manager to make investment decisions on their behalf for at least 20% of their plan assets will now need to run a competitive tender process.

This marks the latest stage of the Competition and Markets Authority’s reform of investment consultancy and fiduciary management services, after its in-depth investigation found significant competition concerns. Of particular concern was the fact that many trustees only use the fiduciary management service offered by their investment consultant, without exploring alternatives.

The new legislation, contained in the Investment Consultancy and Fiduciary Management Market Investigation Order 2019, includes requirements that:

  • trustees wishing to delegate investment decisions for 20% or more of their plan assets must run a competitive tender process when first purchasing fiduciary management services – they can invite bids from whichever firms they choose but must use reasonable endeavours to obtain bids from at least three unrelated fiduciary management providers 
  • trustees who have already appointed one or more fiduciary managers for at least 20% of their plan assets without undertaking a tender process must put the service out to tender within 5 years of the original appointment, and
  • fiduciary management firms have to provide potential new customers with more information on their fees and performance to allow them to compare service providers, as well as providing more information on their fees to existing clients.

Some large pension plans with in-house investment advice or fiduciary management functions are excluded from the new requirements, as are group personal pensions.

The Pensions Regulator is expected to consult within the next few months on draft guidance to help trustees in conducting a competitive tender process. 

Trustees have until 9 December 2019 to ensure that their practices are in line with the new requirements. They should ascertain whether a total of at least 20% of their plan's assets has been allocated to one or more fiduciary management providers without conducting a competitive tender process. If so, they will need to take advice on how they are affected and what remedial action is needed in order to be compliant with the new requirements.

If you require assistance in understanding the new requirements and how they may impact you as a trustee and/or you require assistance in running a competitive tender process, please get in touch with your usual contact in the pensions team.

This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.