Direct line: 020 7066 0214 Email: …Direct line: 020 7066 0214 Email: [email protected] 28 June 2017 Provisional view on undertakings in lieu of a market investigation

Direct line: 020 7066 0214 Email: [email protected]

28 June 2017

Provisional view on undertakings in lieu of a market investigation reference of

investment consultancy services

Following your submission on 20th February 2017 of proposed undertakings in lieu (UIL) of a

referral of investment consultancy services1 to the Competition & Markets Authority (CMA), I

am writing to let you know we have reached a provisional view on the UIL. The final decision

on the market investigation reference (MIR), including whether to accept the UIL, rests with

the FCA Board. I am writing to give you an opportunity to respond to our provisional view

before our Board takes a final decision.

This letter explains our provisional view on the UIL, how we made our assessment and the

next steps.

Our provisional view

While we welcome your proposals, we do not consider that we can be confident that the UIL

would ‘achieve as comprehensive a solution as is reasonable and practicable’ to any adverse

effects on competition that we have identified in investment consultancy services.

Our view is that accepting the UIL at this early stage of our understanding of investment

consultancy services would not be appropriate for the following reasons:

1. Without having carried out a full market study we are unable to confirm our

understanding of the competition issues in this sector. A full investigation of the sector

by the CMA would enable them to identify all the relevant issues and put appropriate

remedies in place.

1 ‘Investment consultancy services’ is defined in paragraphs 5.2-5.4 of the terms of reference in our published

provisional decision to make a MIR www.fca.org.uk/publication/market-studies/ms15-2-2-a-mir.pdf

2. In particular, the CMA would be able to fully investigate the most effective disclosures

for trustees/investors ensuring the information provided was appropriate across the

range of products and services provided by the sector.

3. The UIL package only covers approximately 56%2 of the market, which leaves the

possibility of competition issues for a large segment of the market unaddressed. In

particular, some firms offering advisory and fiduciary management services would still

face conflicts of interest.

4. Finally, given the conflicts of interest we have raised with the vertically integrated

business models in this market, we cannot reasonably be confident, at this stage, that

structural remedies are not necessary.

While we are not able to assess fully whether the UIL would address all the issues in this

market, we make the following observations on the undertakings proposed:

The tendering regime could provide benefits to the market. However, ensuring trustees

have the relevant information and disclosures is essential for this to work effectively.

In reviewing the performance disclosures we are at present unable to assess if the

metrics set out are the most appropriate. It is also unclear, without further work,

whether trustees would understand and be able to engage with the disclosures.

The disclosures for fiduciary management provide for ‘whole fund’ investors, which is a

relatively small section of investors, and would not cover the whole market. This would

possibly leave those in advisory only service, fund of funds and liability driven

investments without information about their type of investment. In addition, this

disclosure is not split out between advisory, manager selection and implementation,

making it difficult for clients to separately assess the quality of these services, including

asset allocation advice.

The fiduciary management fees and charges disclosure could help trustees’

understanding of the costs involved in these services.

The gifts and hospitality, redress mechanism and code of conduct proposals could

provide some improvements. However, the industry commitment to introduce, but not

recommend, their own products may not sufficiently address conflicts of interest

between advisory and fiduciary management services, where the in-house fiduciary

service retains preferential access to advisory clients.

How we assessed the UIL

The Enterprise Act 2002 (EA02) sets out the legal test (concurrent) competition authorities

must use and assess UIL against before deciding to accept or reject UIL. We may accept

undertakings from such persons we consider appropriate instead of making a market

investigation reference to the CMA (s.154(2) EA02). In exercising this power, we must, in

particular, have regard to the need to achieve as comprehensive a solution as is reasonable

2 See Chapter 10 of our Asset Management Market Study Final Report (June 2017)

and practicable to the adverse effects on competition identified, and any detrimental effects on

customers so far as resulting from such adverse effects (s.154(3) EA02). We may also have

regard, in particular, to the effect of any action on any relevant customer benefits arising of

the feature or features of the market (or markets) concerned (s.154(4) EA 02).

We also considered our published FCA (EA02) guidelines3 (and OFT/CMA guidance

4) which both

state that undertakings in lieu of a reference are unlikely to be common. This is because when

we are considering making an MIR, we are usually at the stage where we have not completed

a sufficiently detailed investigation of a competition problem to be able to judge whether

particular undertakings will achieve ‘as comprehensive a solution as is reasonable and

practicable’.

Further detail on how we considered wider regulatory requirements are contained in the

attached Annex.

Next Steps

In accordance with s.169 EA02, we are publically consulting on our provisional view and

proposal to reject the UIL before making a final decision. We will publish a copy of this letter

on our website and invite comment over a four week period. Following this consultation, we

will carefully consider the comments received. The FCA Board will make the final decision on

whether to accept or reject the UIL. If the Board were minded to accept the UIL, we would

consult further on a provisional decision to accept them under s.155 EA02. If not, we expect to

publish a final decision on the rejection of the UIL in September 2017.

Yours sincerely

Christopher Woolard

Executive Director of Strategy & Competition

3 FCA Finalised guidance – FF15/9 Market studies and market investigation references – a guide to the FCA’s powers (page 21)

https://www.fca.org.uk/publication/finalised-guidance/fg15-09.pdf

4 See Market investigation references – OFT guidance about the making of references under Part 4 of the Enterprise Act (OFT 511) available at:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284399/oft511.pdf. This guidance was originally published by the OFT in 2006 and has been adopted by the CMA Board. The original text has been retained unamended, The CMA has issued some supplemental guidance (CMA3) on MIR, available at:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/462715/CMA3_Markets_Guidance_-_updated_September_2015.pdf. In case of conflict with OFT511, CMA3 prevails.

Annex - Additional legal assessments

In addition to our considerations of the Enterprise Act and FCA/CMA guidance detailed above,

we have considered the Equality and Diversity Act 2010 and the Legislative & Regulatory

Reform Act 2006 as follows.

We have considered the equality and diversity issues that may arise from our proposals.

Overall, we do not consider that the proposals adversely impact any of the groups with

protected characteristics under the Equality Act 2010. But we will continue to consider the

equality and diversity implications of the proposals during the consultation period and will

revisit them when making our final decision.

We have had regard to the principles in the Legislative & Regulatory reform Act 2006 (LRRA)

for the parts of the proposals that consist of general policies, principles or guidance as follows:

transparent - we have provided our provisional view on the UIL as detailed above with the

addition of a public consultation inviting views from interested parties

accountable – we have a statutory requirement to consider UIL offered and to consult.

proportionate – our provisional view is that the UIL would not “achieve as comprehensive a

solution as is reasonable and practicable” for the reasons set out above but are consulting

prior to making a final decision.

consistent – this is the first occasion we have received UIL in response to a provisional

decision to make an MIR, however, our provisional view and proposal to reject is in line

with our published guidance5

targeted only at cases in which action is needed – our provisional view of the investment

consultancy market is that there are reasonable grounds to suspect that features of the

investment consultancy market restrict or distort competition.

5 https://www.fca.org.uk/publication/finalised-guidance/fg15-09.pdf

Confidential20 February 2017 – updated 19 April 2017

1CEC-#4218338-v3

ANNEX A

PROPOSED UNDERTAKINGS IN LIEU OF A MARKET INVESTIGATION

REFERENCE GIVEN TO THE FCA BY EACH OF AON HEWITT, MERCER

AND WILLIS TOWERS WATSON

PARTIES:

These undertakings in lieu are given by:

Aon Hewitt Limited and Hewitt Risk Management Services Limited (“Aon Hewitt”);

Mercer Limited (“Mercer”); and

Towers Watson Limited (“Willis Towers Watson"),

together the “Parties”.

WHEREAS:

(a) The Financial Conduct Authority (“FCA”) has published a provisional decision to make a

market investigation reference on investment consultancy services under section 131 of the

Enterprise Act 2002;

(b) Each of the Parties has offered undertakings to the FCA in accordance with section 154 of the

Enterprise Act 2002; and

(c) The FCA has decided to accept the Parties' undertakings in lieu of making a market

investigation reference to the Competition and Markets Authority.

NOW THEREFORE:

Each of the Parties hereby gives the FCA the undertakings below (these "Undertakings") and shall

act in the manner set out in this document.

1 Scope

1.1 These Undertakings shall be binding on each of the Parties in the United Kingdom and apply in

respect of matters in the United Kingdom.

2 Definitions and interpretation

2.1 In these Undertakings:

"Actuarial Valuations" means the same as within section 224 of the Pensions Act 2004,

namely a written report, prepared and signed by the actuary, valuing the scheme's assets

and calculating its technical provisions.

"Advisory Services" means the provision of investment advice to a Client in relation to

Asset Allocation and Manager Selection.


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“Advisory Services Consultant” means a Party that provides Advisory Services.

“Advisory Services Contract" means a contract relating to the provision of Advisory

Services.

“Annual Disclosure Statement” means a statement in the format prescribed at Annex 4.

“Asset Allocation” means the strategic setting of target allocations by asset class, including

asset liability modelling and dynamic asset allocation.

"Client" means a trustee of a third party occupational pensions scheme which has renewed

or continued with an Investment Services Contract with a Consultant pursuant to a

Consultant Appointment.

“Commencement Date” means [TO BE INSERTED] 2017.

“Competitive Tender Process” means a process by which an existing Client acting

independently of the incumbent Consultant invites bids from at least two Consultants for an

Investment Services Contract and evaluates any bids received independently in good faith.

Completion of a Competitive Tender Process shall be construed as having occurred either

on the effective date of the Consultant Appointment or upon confirmation of the

reappointment of the Consultant should the pre-existing Investment Services Contract

remain in force following a Competitive Tender Process.

"Composite" means a selection of individual performance return streams combined into one

performance return stream.

"Consultant" means an Advisory Services Consultant and/or a Fiduciary Manager.

“Consultant Appointment” means the appointment of a Consultant as established by the

effective date of the Investment Services Contract.

“Fee Disclosure Statement” means the information regarding fees and other cost

structures in relation to Fiduciary Management Services which is presented in the format set

out in Annex 3.

"Fiduciary Manager" means a Party that provides Fiduciary Management Services.

"Fiduciary Management Contract" means a contract relating to the provision of Fiduciary

Management Services.

"Fiduciary Management Services" means the provision of services where a Client has

delegated responsibility for making investments in respect to some or all of their assets to

the Consultant.

"Highly-rated Investment Manager Strategies" means the investment manager strategies

that are ranked the highest by a Consultant in making recommendations to Clients as to

which investment manager strategy to use in relation to a particular asset class.


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“Investment Consultants’ Code of Conduct” means a code of conduct applicable to

Consultants as defined in Clause 10.1.

“Investment Services” means the provision by a Consultant to a Client of Advisory

Services and/or Fiduciary Management Services.

“Investment Services Contract” means a contract relating to the provision of Investment

Services. Where a Client: (i) enters into a contract with a Consultant for the provision of

Fiduciary Management Services; or (ii) extends an existing Fiduciary Management Services

Contract to include the provision of additional Fiduciary Management Services, any such

additional contract or contract amendment shall not be considered to be a separate

Investment Services Contract for the purposes of Clause 3.

“Longstop Date” means the day before the expiry of ten consecutive years from the later of

(a) the date on which the Client has entered into a Consultant Appointment or (b) the date

on which the latest Competitive Tender Process took place.

“Manager Selection” means the evaluation and research leading to the selection of an

investment manager strategy and/or the structuring of a portfolio of investment manager

strategies.

“Standards” means a performance measure based on the Client’s investment objectives

and any relevant benchmark which is expressly agreed with the Client in writing prior to the

provision of Investment Services.

“Services Disclosure Statement” means the clarification of the services under a Fiduciary

Management Contract in the prescribed form set out under the heading “activities” in Annex

3.

“Total Liability Benchmark” means the total liability benchmark as set out in Annex 2.

2.1 Words or expressions shall have the meaning assigned to them in these Undertakings and

references to sections and Annexes shall mean sections of, and Annexes of, these

Undertakings, unless otherwise stated.

2.2 The Interpretation Act 1978 shall apply as if these Undertakings were an Act of Parliament.

2.3 Headings and titles shall be disregarded.

2.4 The Annexes shall form part of these Undertakings.


4CEC-#4218338-v3

3 Tender regime (UIL 1)

Outline commitment

The Parties undertake to encourage regular tendering of Investment Services Contracts in

relation to which they act as Consultant to address the FCA’s concerns about the levels of

switching of contracts for Advisory Services and/or Fiduciary Management Services.

3.1 For any Investment Services Contract that entered into force: (i) on or after the

Commencement Date; or (ii) fewer than eight (8) consecutive years before the Commencement

Date:

(a) The Parties undertake that they will not continue to give effect to an Investment Services

Contract with a Client unless that Client has, in relation to such Investment Services

Contract, made a Consultant Appointment pursuant to a Competitive Tender Process in

one of the preceding ten consecutive years.

(b) Where a Client has not completed a Competitive Tender Process for a Consultant

Appointment by the end of the fifth consecutive year following the Consultant

Appointment, the Parties undertake that they will inform the Client that it should review

the provision of services under the relevant Investment Services Contract. The Parties

undertake that, until notice is given pursuant to Clause 3.1(c) or completion of a

Competitive Tender Process (whichever is earlier), they will continue to inform the Client

on an annual basis that it should review the provision of services under the Investment

Services Contract.

(c) If, twelve (12) months before the Longstop Date, a Client has not given a Party notice of

commencement of a Competitive Tender Process in relation to an Investment Services

Contract, the Party shall, to the extent it has not already done so, serve a notice on the

Client stating that, unless the Party is re-appointed following a Competitive Tender

Process, the Consultant shall cease to act in accordance with the terms of the

Investment Services Contract on the Longstop Date.

To illustrate the application of Clause 3.1:

Example 1

If a Party enters into an Investment Services Contract with a Client on 1 January

2020:

1. On 1 January 2025 (and subsequently on 1 January 2026, 1 January 2027 and

1 January 2028) – if the Client has not carried out a Competitive Tender

Process since the Investment Services Contract was entered into – the Party

will inform the Client that it should review the provision of services in line with

clause 3.1(b)

2. On 1 January 2029 – if the Client has not carried out a Competitive Tender


will serve a notice on the Client stating that it will cease to act on 1 January

2030 unless the Client carries out a Competitive Tender Process and the Party


5CEC-#4218338-v3

is reappointed.

3. On 1 January 2030 – if the Client has not carried out a Competitive Tender


will cease to act for that Client.

Example 2

Assuming the Commencement Date is 1 June 2017, this clause will apply to

Investment Services Contracts entered into before 1 June 2017 but after 1 June 2009.

For example, assuming an Investment Services Contract entered into on 1 June 2016:

1. On 1 June 2021 (and subsequently on 1 June 2022, 1 June 2023 and 1 June

2024) – if the Client has not carried out a Competitive Tender Process since

the Investment Services Contract was entered into – the Party will inform the

Client that it should review the provision of services in line with clause 3.1(b)

2. On 1 June 2025 – if the Client has not carried out a Competitive Tender


will serve a notice on the Client stating that it will cease to act on 1 June 2026

unless the Client carries out a Competitive Tender Process and the Party is

reappointed.

3. On 1 June 2026 – if the Client has not carried out a Competitive Tender


will cease to act for that Client.

3.2 For any Investment Services Contract that entered into force more than or equal to twenty (20)

consecutive years before the Commencement Date:

(a) The Parties shall not continue to give effect to such an Investment Services Contract

from the third anniversary of the Commencement Date unless that Client has, in relation

to such Investment Services Contract, made a Consultant Appointment pursuant to a

Competitive Tender Process by the third anniversary of the Commencement Date.

(b) If, by [two years after the Commencement Date], the Client has not given a Party notice

of commencement of a Competitive Tender Process in relation to an Investment Services



Process by [three years after the Commencement Date], the Consultant shall cease to

act in accordance with the terms of the Investment Services Contract [three years after

the Commencement Date].

Example – to illustrate the application of Clause 3.2

Assuming the Commencement Date is 1 June 2017, if a Party entered into an

Investment Services Contract with a Client on or before 1 June 1997, the Party will not

renew or give effect to that Investment Services Contract from 1 June 2020 unless the

Party is reappointed pursuant to a Competitive Tender Process between 1 June 2017

and 1 June 2020. On 1 June 2019, the Party will give notice of its intention to terminate

on 1 June 2020 if a Competitive Tender Process has not taken place in the meantime.


6CEC-#4218338-v3

3.3 For any Investment Services Contract that entered into force more than or equal to eight (8)

years before the Commencement Date but fewer than twenty (20) years before the

Commencement Date:

(a) The Parties shall not continue to give effect to such an Investment Services Contract

from the fifth anniversary of the Commencement Date unless that Client has, in relation

to such Investment Services Contract, made a Consultant Appointment pursuant to a

Competitive Tender Process by the fifth anniversary of the Commencement Date.

(b) If, by [four years after the Commencement Date], the Client has not given a Party notice

of commencement of a Competitive Tender Process in relation to an Investment Services



Process by [five years after the Commencement Date], the Consultant shall cease to act

in accordance with the terms of the Investment Services Contract [five years after the

Commencement Date].

Example – to illustrate the application of clause 3.3

Assuming the Commencement Date is 1 June 2017, if a Party entered into an

Investment Services Contract with a Client on or before 1 June 2009 but after 1 June

1997, the Party will not renew or give effect to that Investment Services Contract from 1

June 2022 unless the Party is reappointed pursuant to a Competitive Tender Process

between 1 June 2017 and 1 June 2022. On 1 June 2021, the Party will give notice of

its intention to terminate on 1 June 2022 if a competitive tender process has not taken

place in the meantime.

3.4 For the purposes of Clauses 3.1 to 3.3, an Investment Services Contract shall be deemed to

have entered into force on the later of:

(a) the effective date of the Investment Services Contract; and

(b) the date on which the latest Competitive Tender Process in respect of that Investment

Services Contract took place.

3.5 For the avoidance of doubt, for the purposes of this Clause 3:

(a) before continuing to give effect to an Investment Services Contract, the incumbent

Consultant must use all reasonable efforts to confirm that the Consultant Appointment

was made pursuant to a Competitive Tender Process; and

(b) an Investment Services Contract that was entered into subsequent to any previous

Investment Services Contract for the same services with the same Client without a

Competitive Tender Process will be deemed to have entered into force on the date that

the first Investment Services Contract with the Client was entered into.


7CEC-#4218338-v3

4 Industry standards for the public disclosure of performance in relation to

Manager Selection within active management (UIL 2)

Outline commitment

To demonstrate their commitment to improving transparency and comparability of active asset

manager performance, the Parties will provide Clients with detailed information which will

allow them to assess the performance of Highly-rated Investment Manager Strategies over

consistent time periods and over comparable mandates. A standardised set of Composites

will be published on the Parties’ websites as a representation of the performance of Highly-

rated Investment Manager Strategies.

4.1 The Parties will provide on a quarterly basis, on a public and readily available basis on each of

the Parties’ websites, information regarding the performance of Manager Selection within active

asset management to Clients in accordance with the prescribed format and methodology set

out in Annex 1.

4.2 Calculations and backing data shall be retained on file by each Party and made available to the

FCA on request.

5 Industry standards for the public disclosure of performance in relation to

Fiduciary Management solutions of whole-funds (UIL 3)

Outline commitment

To enhance transparency and allow better Client assessment of capability, the Parties

undertake to adopt standards to present and calculate the performance of Fiduciary

Management whole-fund solutions. A standardised set of Composites will be published on the

Parties' websites as a representation of the Parties' unconstrained performance. This will

allow direct comparison of different Fiduciary Managers’ track records against overall

objectives over consistent time periods and comparable mandates.

5.1 Each of the Parties will provide on a quarterly basis, on a public and readily available basis on

each of the Parties’ websites, information regarding the performance of Fiduciary Management

whole-fund solutions to Clients in accordance with the prescribed format and methodology set

out in Annex 2.

5.2 Each of the Parties will inform their Advisory Services Clients, in writing, which composite is, in

the relevant Party's reasonable view, most suitable to compare against their investment

strategy.


8CEC-#4218338-v3

6 Industry standards on disclosure of fee and other cost structures in

relation to Fiduciary Management Services to prospective clients (UIL 4)

Outline commitment

To allow Clients to compare overall fees charged and other fees charged by third parties

across Fiduciary Managers, the Parties undertake to provide fee structures in relation to

Fiduciary Management Services, including during Competitive Tender Processes, in a

specified format. This will equip Clients with the information necessary to compare what

services are provided under the charges quoted and provide full transparency on fee

structures for Fiduciary Management Services.

6.1 On the request of a prospective Fiduciary Management Services Client, and during a

Competitive Tender Process relating to the provision of Fiduciary Management Services, each

of the Parties will provide to Clients:

(a) the Fee Disclosure Statement;

(b) the Services Disclosure Statement; and

(c) where relevant, an Annual Disclosure Statement.

7 Industry standards on disclosure of fee and other cost structures in

relation to Fiduciary Management Services for incumbent Clients (UIL 5)

Outline commitment

To demonstrate their commitment to enhancing transparency of fees charged to Clients

receiving Fiduciary Management Services, the Parties will provide an Annual Disclosure

Statement, covering all costs, comparing directly with costs stated during the Competitive

Tender Process (or more recently if subsequently updated).

7.1 The Parties shall provide an Annual Disclosure Statement to Clients receiving Fiduciary

Management Services in the format prescribed in Annex 4.

7.2 The costs data shall be directly comparable with the costs stated by the Party during the

Client's previous Competitive Tender Process pursuant to Clause 6.1, or more recently if the

Party has subsequently provided updated costs information to the Client.


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8 Conflicts of interest (UIL 6)

Gifts, hospitality and entertainment

Outline commitment

The Parties undertake to maintain a gifts, hospitality and entertainment policy and to refuse

any gifts, hospitality and entertainment that would reasonably be expected to give rise to a

conflict of interest, in connection with their provision of Investment Services, and to make their

policies in this respect public.

8.1 A Party cannot receive any non-monetary benefit that would reasonably be expected to give

rise to a conflict of interest in connection with their provision of Investment Services.

8.2 A Party must have, and make public (as well as make known to their Clients upon request and

at the outset of their relationship) a gifts, hospitality and entertainments policy.

8.3 Low-value gifts, hospitality and entertainment may be received by the Parties in connection with

their provision of Investment Services if such gift, hospitality and entertainment is below a level

specified in the Party’s gifts, hospitality and entertainments policy.

Fiduciary Management

Outline commitment

For existing Clients taking Advisory Services or new Clients exploring a mix of Advisory

Services and Fiduciary Management Services, the Parties undertake to provide the

information below to Clients.

8.4 Prior to entering into a Fiduciary Management Contract with a Client (including with a Client

who is, or will also be, a party to an Advisory Services Contract) a Party must notify the Client in

writing of the key features of its Fiduciary Management service, such notification shall include:

(a) If applicable, an explanation of the difference between the Client’s previous Advisory

Services Contract and its proposed Fiduciary Management Contract.

(b) A statement that a Party acting in its capacity as an Advisory Services Consultant may

introduce but not recommend its own Fiduciary Management Services to an Advisory

Services Client.

(c) A statement that other entities also provide Fiduciary Management Services; and

(d) A statement that it would be best practice for the Client to conduct a Competitive Tender

Process before entering into a Fiduciary Management Contract.


10CEC-#4218338-v3

Tender management

Outline commitment

To protect against conflicts of interest that may arise during the Competitive Tender Process

where a Party is the incumbent Consultant.

8.5 Where a Party is the incumbent Consultant, that Party shall not manage a Competitive Tender

Process in which it is a candidate.

Master trusts

Outline commitment

To protect against conflicts of interest that may arise from a Party recommending its own

Master Trust to a client.

8.6 A Party acting in its capacity as a Consultant may introduce but not recommend its own Master

Trust to a client.

9 Redress mechanism (UIL 7)

Outline commitment

The Parties undertake to formalise, and review periodically, complaints and redress

procedures.

9.1 Where a Client makes a complaint about a Party’s Investment Services, the Party must handle

the complaint in accordance with its internal complaints policy referred to at Clause 9.2 below.

9.2 A Party must maintain a complaints handling policy. Such policy shall include:

(a) Procedures for the prompt handling of complaints; and

(b) Where a complaint remains unresolved for more than 28 days (or such period as the

context demands) provision for escalation of that complaint to the Chief Executive Officer

of the Party.

9.3 The complaints handling policy referred to at Clause 9.2 above shall be disclosed to Clients:

(a) at the time a Client first enters into an Investment Services Contract with a Party; and

(b) any time thereafter upon request by the Client.

10 Adherence to a Code of Conduct (UIL 8)

Outline commitment


11CEC-#4218338-v3

The Parties undertake to abide by the Investment Consultants’ Code of Conduct. This will

be based on six principles.

10.1 The Parties undertake to implement within six weeks of the Commencement Date and then

comply with a code of conduct based on the following principles:

(a) DUTY TO CLIENT: When providing services to a client, a Consultant must act in

accordance with its duty of care to its clients, in the best interests of its clients and

honestly, fairly and professionally;

(b) INFORMATION: A Consultant must pay due regard to the information needs of its

clients, and communicate information to clients in a way which is clear, fair and not

misleading;

(c) CONFLICTS OF INTEREST: A Consultant must have documented controls in place to

identify, manage and record conflicts of interest fairly, both between itself and its clients

and between a client and another client;

(d) GIFTS: A Consultant must conduct business with integrity by, amongst other actions,

refusing any gift, hospitality or entertainment that would reasonably be expected to give

rise to a conflict of interest;

(e) REDRESS: A Consultant must take reasonable care to organise and control its affairs

responsibly and effectively, including having appropriate complaints and redress

procedures; and

(f) REVIEW AND TENDER: A Consultant must recommend that their Clients carry out a

review of their Investment Services at least every five years and require their Clients to

carry out a Competitive Tender Process at least every 10 years.

(the “Investment Consultants’ Code of Conduct”)

11 Effective date and on-going monitoring of these Undertakings

11.1 These Undertakings take effect on the Commencement Date.

11.2 The Parties undertake to provide the FCA on request, and within 15 working days of a request,

reasonable information regarding their implementation of these Undertakings.

Signed for and on behalf of Aon Hewitt Limited:

Signature: - - - - - - - - - - - - - - - - - -

Name: - - - - - - - - - - - - - - - - - -

Position: - - - - - - - - - - - - - - - - - -

Date: - - - - - - - - - - - - - - - - - -


12CEC-#4218338-v3

Signed for and on behalf of Hewitt Risk Management Services Limited:

Signature: - - - - - - - - - - - - - - - - - -

Name: - - - - - - - - - - - - - - - - - -

Position: - - - - - - - - - - - - - - - - - -

Date: - - - - - - - - - - - - - - - - - -

Signed for and on behalf of Mercer Limited:

Signature: - - - - - - - - - - - - - - - - - -

Name: - - - - - - - - - - - - - - - - - -

Position: - - - - - - - - - - - - - - - - - -

Date: - - - - - - - - - - - - - - - - - -

Signed for and on behalf of Towers Watson Limited:

Signature: - - - - - - - - - - - - - - - - - -

Name: - - - - - - - - - - - - - - - - - -

Position: - - - - - - - - - - - - - - - - - -

Date: - - - - - - - - - - - - - - - - - -

Accepted for and on behalf of the Financial Conduct Authority:

Signature: - - - - - - - - - - - - - - - - - -

Name: - - - - - - - - - - - - - - - - - -

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13CEC-#4218338-v3

Annex 1.

Industry standards for the public disclosure of performance of

Manager Selection within active management

Prescribed Format:

Highly rated

Investment

Manager

Strategies

Performance

of managers

(net of fees)

Benchmark Relative

return

Risk

(tracking error

/volatility)

Median

management

fee paid

Turnover

within

sample

3 years X% pa X% pa X% pa X% pa X % pa X%



Explanatory Note:

The information above shall be produced on a quarterly basis using the following methodology:

(a) Composites of Highly-rated Investment Manager Strategies shall be provided by each of

the Parties against benchmarks including appropriate risk measures (volatility and/or

tracking error measures). The Parties shall submit a list of benchmarks to the FCA for

approval by [X] and thereafter by [Y] in each subsequent year;

(b) Equal weighted Composite returns shall be used;

(c) Composites shall be split by the following asset classes: [relevant asset classes to be

listed below];

(d) The median fee paid to investment managers within the Composites shall be used where

relevant;

(e) All Highly-rated Investment Manager Strategies shall be included under each Composite;

Highly rated Investment Manager Strategies

Returns over calendar year (%)

YTD 2016 2015 2014 2013 2012Performance of managers (net of fees)

X X X X X X

Benchmark X X X X X XRelative return X X X X X XNumber of manager strategies

X X X X X X


14CEC-#4218338-v3

(f) Composites shall be updated quarterly;

(g) Composites shall be provided net of all management fees; and

(h) Upgrades and downgrades shall be reflected at the end of each quarter; performance

prior to the relevant upgrade shall not be included; performance prior to the relevant

downgrade shall be included.


15CEC-#4218338-v3

Annex 2.

Industry standards for the public disclosure of performance of

Fiduciary Management Services for whole-funds

Prescribed Format:

Number of Clients in each Composite:Composite Clients as at latest quarter end0%< Return target over liabilities ≤ 1% x1%< Return target over liabilities ≤ 2% x2%< Return target over liabilities ≤ 3% x3%< Return target over liabilities x

Explanatory Note:

The information above shall be produced on a quarterly basis using the following methodology:

(a) Composites shall be put together by each of the Parties, each such Composites shall

aggregate Clients with similar return objectives and service provided and shall be equally

weighted.

Net relative returns over Liability Benchmark measured on either a gilts flat or swaps flat basis

Composite YTD 2016 2015 2014 2013 20120%< Return target over liabilities ≤ 1%

X X X X X X

1%< Return target over liabilities ≤ 2%

X X X X X X


X X X X X X

3%< Return target over liabilities

X X X X X X

Composite 3 year (% pa) 5 year (% pa)

Net Return Tracking error relative to Liability Benchmark

Net Return Tracking error relative to Liability Benchmark


X X X X


X X X X


X X X X

3%< Return target over liabilities X X X X


16CEC-#4218338-v3

(b) Composites shall include:

(i) Clients under a Fiduciary Management Contract;

(ii) Clients that have delegated whole-fund portfolio management to a Fiduciary Manager; and

(iii) Clients that have minimal or no constraints.

(c) Composites shall comprise clients with similar return targets per annum relative to a

Total Liability Benchmark per annum. The Composites to be reported are as follows:

(i) 0%< Return target ≤ 1%

(ii) 1% < Return target ≤ 2%

(iii) 2%< Return target ≤ 3%

(iv) 3%< Return target;

(d) The Total Liability Benchmark shall be calculated as follows:

(i) Client specific cashflow information shall be used;

(ii) All non-market related impacts (i.e. actuarial assumption changes, Actuarial Valuations) shall be removed; and

(iii) Discounting shall be on a gilts flat or swaps flat basis.

(e) Each Composite shall comprise of equally weighted Client performance data for both assets and Total Liability Benchmark using monthly data.

(f) Relative returns and risk net of all costs shall be reported.

(g) Risk shall be presented as tracking error, namely the standard deviation of net relative

returns over stated period using monthly data.

(h) The number of clients within each Composite shall be stated.

(i) Clients shall be included in each Composite the month following the transition to their

initial portfolio.


17CEC-#4218338-v3

Annex 3.

Industry standards on disclosure of fee and other cost structures in relation to Fiduciary Management Services during Competitive

Tender Process exercisesPrescribed Format:

Fees charged by fiduciary manager (including all in-house products)

X% pa £XXX

Underlying asset management fees

X% pa £XXX

Additional expenses (e.g. custody, pooled fund admin costs, admin expected performance fees)

X% pa £XXX

Expected ongoing transaction costs within underlying asset managers and within Fiduciary Management

X% pa £XXX

Total cost X% pa (sum of above) £XXX (sum of above)

Expected one off transition costs

X% pa £XXX

Services provided in proposal:Activities Included?Advise on funding objectivesAdvise on time horizon and journeyAdvise on risk and return targetsAdvise on asset allocation parameters (if appropriate)Advise on de-risking triggers

��

Design and implement bespoke liability hedging �

Monitor triggersImplement de-risking

��

Asset adjustmentsRebalancingDynamic risk management

��

Hire/fire managersObtain legal reviewNegotiate fees

��

Monitor custodianManage all asset transactionsManage cashflows Daily funding level monitoringQuarterly reportingRegulatory including SIP and accountsAssistance on PPF Levy

��


18CEC-#4218338-v3

Annex 4.

Industry standards on disclosure of Fiduciary Management Services

fees for Clients in the form of an Annual Disclosure Statement

Prescribed Format:

Fee estimate provided in previous year's disclosure

Fees charged by Fiduciary Manager (including all in-house products)

X% pa £XXX X% pa / £XXX

Underlying asset management fees


Additional expenses (eg. custody, pooled fund admin costs, admin expected performance fees)


Transaction costs within underlying asset managers and within Fiduciary Management*


Total cost X% pa (sum of above) £XXX (sum of above) X% pa / £XXX

Services provided in Investment Services Contract:

Activities Included?Advise on funding objectivesAdvise on time horizon and journeyAdvise on risk and return targetsAdvise on asset allocation parameters (if appropriate)Advise on de-risking triggers

��

Design and implement bespoke liability hedging �

Monitor triggersImplement de-risking

��

Asset adjustmentsRebalancingDynamic risk management

��

Hire/fire managersObtain legal reviewNegotiate fees

��

Monitor custodianManage all asset transactionsManage cashflows

��


19CEC-#4218338-v3

Daily funding level monitoringQuarterly reportingRegulatory including SIP and accountsAssistance on PPF Levy

��

Direct line: 020 7066 0214 Email: …Direct line: 020 7066 0214 Email: [email protected] 28 June 2017 Provisional view on undertakings in lieu of a market investigation

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