On 10 December 2019, new legal requirements from the Competition & Markets Authority came into force.

Among other changes, the CMA's The Investment Consultancy and Fiduciary Management Market Investigation Order 2019 (the "Order") made it mandatory for trustees to set objectives for their scheme's investment consultants and fiduciary managers.

The Pensions Regulator ("TPR") has issued guidance, accessible here, to assist trustees in interpreting their obligations under the Order. It also sets out proactive best practice procedures that could be implemented by trustees in addition to the compulsory. TPR's guidance encourages compliance with the spirit of the provisions of the Order, above the minimum obligation.

Which advisors need objectives?

Trustees must identify which of their advisors the Order's objective-setting requirement is applicable to.

A fiduciary manager is defined as a provider of advice in relation to investment strategy and decision making. Fiduciary managers may act using power(s) that have been delegated to them by the trustees.

The definition of investment consultant is broader, it includes anyone advising on: scheme investments; the scheme's statement of investment principles; strategic asset allocation; or, manager selection. This potentially captures wealth managers, independent financial advisers and the scheme actuary (though certain actuarial advice is exempt).

The determining factor will be the nature of advice that an individual provides to the trustees (which will differ depending on their remit in a particular project) as opposed to whether or not they identify themselves as an investment consultant.

Making an objective list

The Order does not prescribe the form or content of specific objectives, so trustees have the flexibility to decide what fits best with their scheme and specific sector conditions. A combination of quantitative, qualitative, long and short term objectives is suggested.

TPR guidance contains helpful "case studies" with suggested objectives. Some examples include:

  • "Help the trustees to stabilise and improve the scheme's funding level over time";
  • "Maintain fees in line with tender submission";
  • "Help the trustees to review their investment governance arrangements and terms of reference for any sub-committees or delegated authorities".

Assessing if objectives have been met

Trustees should arrange to review progress with these objectives at least three times per year, and after any significant scheme changes. The objectives should be reviewed in accordance with the timeframes that were set, so it may be appropriate to have more frequent ad hoc reviews.

Annual compliance statements must be submitted to the CMA by the trustees. The first statements will be due in January 2021. Non-compliance with the Order must also be reported, within 14 days of it being discovered.

Therefore, trustees should start making preparations to comply with those parts of the Order that are applicable to them, and engage with their advisers as appropriate.

If you would like to discuss anything raised in this blog, please get in touch with your usual Brodies contact.


Poppy Prior