Dropping the Bomb on Asset Management
Fri, 24 Feb 2017 08:19:59 GMT
Considering the fall-out from the FCA Management Market Study
By Lene Hansen – Bips Global Ltd
It is still in the interim phase but shock waves from the recent Financial Conduct Authority (FCA) Asset Management Market Study are already being felt across the industry. Despite the voluminous and diverse amount of research and findings, the Executive Summary takes very specific aim at actively managed funds. The main observation being how poorly they compare to passive funds in relation to their performance and returns, particularly after charges. It is a valid observation but I do not believe that it is aimed at the real enemy. Initially several questions came to mind whilst I was reading this report; questions which largely boiled down to one central problem. These questions were:
a) How do we encourage investors and trustees to take more active and informed control of the investments that they have responsibility for?
b) How do we incentivise asset managers to increase transparency, accountability and proportional economies of scale?
c) Within the asset management area how do we make fund managers and investment advisers make better decisions and to receive remuneration which aligns better with performance?
When I looked at all these questions it came to me that the central question and the real enemy here is the lack of clarity in communications between stakeholders (investors, investment advisors, fund managers, traders and trustees) and the fact that, for various reasons, they are generally not motivated to achieve it. The latter point is the important one.
One astute observer questioned why people are more inclined to question and save on pennies on their shopping than they are to save thousands of pounds on their investments. The answer given was that investors don’t feel that they understand or have control over their investments. This can generally be said to be true of all the stakeholders mentioned above.
The reaction of the regulator is, as usual, to suggest more regulation. This is not the best approach when the market is already struggling under the current regulatory regime. Interestingly, the FCA itself points to the fact that the Asset Management industry takes an evolutionary rather than revolutionary approach to technological solutions. In our submission to the FCA we have asked them to step up and do the same. Basically, to consider what would most efficiently support constructive and long-term change in this market.
It is our view that we should stop nannying the stakeholders. We should engage, empower and incentivise them instead. So how do we do this? There is a myriad of opportunities presented by this thinking. One suggestion would be for the FCA to consider developing a secure, cloud-based 'Investment Management' platform which would firstly give investors a quick tutorial outline of what to look for (i.e. not past performance). This could be followed by a simple website onto which they could enter details of their investments (structured to receive different types of reporting) and calculate their net profits/losses. Investors would be given a link with which to report groups which don't provide enough detail to support a clear investment picture and those which were not responsive to reasonable requests.
In summary, over-regulation is not the answer here. The current lack of clarity in stakeholder communications has resulted in apathy and ignorance. Stakeholders should be encouraged to take responsibility and become informed and re-engaged with their investments and those that they manage for others. The happy fact is that technology is available to enable this. The sad fact is that it is unlikely to be utilised.
This blog was originally published at the Bips Global website and is reproduced here with permission