NERA’s Role in CMA Investment Consulting Market Investigation

Grant Saggers and Lionel Gendebien

The Situation

NERA Economic Consulting is pleased to have advised the UK’s largest investment consultancy and fiduciary management services supplier, Mercer, in the Competition and Markets Authority’s (CMA) investigation of the two markets of investment consulting and fiduciary management.

Investment consultancies help pension trustees make the right investment decisions for their pension funds. Investments need to deliver appropriate returns and necessary cash flows across the lifetimes of the members of the pension scheme, while managing risks and solvency.

Investment consultancies, typically staffed by actuarial professionals, must analyse and model huge volumes of data to help trustees make the right choices from asset classes around the world. These firms have influence over half of all UK households’ retirement savings and advise on pension scheme assets worth £1.6 trillion. Investment consultancies need to deliver high-quality advice, and competitive pressure helps ensure they keep improving and innovating.

During its study of the asset management market, the Financial Conduct Authority (FCA) raised concerns that some investment consultancies may not be delivering value for money for pension trustees. The FCA asked the CMA to conduct an in-depth investigation of investment consultancy and the rapidly growing investment solution, fiduciary management, in which trustees would delegate decisions about their pension scheme to a fiduciary manager (which may also be the investment consultant).

Mercer is the leading player active in both markets in the United Kingdom. It was required to actively and openly engage in the CMA’s investigation. 

NERA's Role

NERA supported Mercer and its external legal team, Norton Rose Fulbright, through the market investigation. NERA helped Mercer respond to the significant data requests, host site visits, and give evidence at hearings.

NERA made significant contributions in helping prove empirically that:

  • Mercer was the only investment consultant that significantly and sustainably outperformed benchmarks and added value for trustees in stock selection;
  • Fiduciary services clients were receiving highly favourable outcomes, and conflicts of interest were being managed appropriately; and
  • Costly requirements for mandatory tendering (and retendering) of advisory relationships were unlikely to yield significant benefits once data issues in the CMA’s provisional analyses were corrected. Once corrected, there was little robust evidence of customer detriment.   

NERA assisted in presenting evidence in a compelling way, for example, explaining weaknesses in econometric analyses through infographics. For example, see the annex to Mercer’s submission on tendering (here). 

The Result

The CMA published its final report in December 2018 and implemented a remedies package to further improve information transparency and tendering across the market. The findings reflected favourably on the value delivered by Mercer to its pension scheme clients.

The CMA’s final report and Mercer’s submissions are available on the CMA case page.