We have said before how the early days of Altor have been fascinating. Rarely are you afforded the chance to start from scratch in life and this has been one of those times. The last decade alone has seen huge advancements in technology and what is possible to achieve for people. In fact on the 29th June 2017 it was ten years since we saw the sale of the first smartphone. A device that we now both take for granted and have as an ever present companion, many of us having given up watches, alarm clocks, laptops, radios and TVs for these little devices that do so much. Financial advice has had to change in that time too, more qualified, quicker, available on demand via the same smartphones. The only difference being that the pool of staff has shrunk and so advice, unlike the phone, is a rarer commodity than it once was.
One area of finance that thinks it has changed but fundamentally hasn’t, is the fund management industry but it might be about to in the next decade.
We have spent a lot of electronic time and a lot of shoe leather/palm skin trying to assess discretionary fund management in the UK and it too has been an interesting exercise. Setting aside our views for a minute on the value of active fund managers, we have learnt a lot from meeting fund managers and not all of it encouraging.
On the positive side we have met a few firms that know why their results have lagged their cheaper passive equivalents, can articulate their value add in turbulent markets and are really interested/engaged in the clients we as a firm have. There are some who can describe the clients that they might suit and display half a sense of humour.
Unfortunately for every one of these we have met there are two that are the opposite of this and it really beggars belief that these firms/individuals attract client money at all. Sadly it is probably because many ‘independent’ advisers pick one discretionary fund manager (often on the spurious justification that they are local) and refer all clients to them.
So the first problem is that it is a sea of white, upper middle class, middle aged men (WUMAM anyone). Yes, yes we know what our own profile photos tell you (we are working on it). This can’t be healthy for a client population in the UK that is so diverse itself (there is a rumour doing the rounds that up to half the population might be female) and we are not sure who the awarding body is for the monopoly on fund manager jobs but they really ought to stop it.
The second issue is that the focus is very often, all wrong. We have had fund managers and their business development people talk to us about how much they want to support our business, pay us well, take us out, buy us lunch, help us with due diligence, lighten our load, match us with the right people, give us free diaries and pens. It is all me, me, me when it should be you (the client), you, you. They don’t understand that we stand in our clients’ shoes for them so that they don’t have to sit through endless investment pitches and presentations. When they see an adviser in a suit they don’t get that they should see our clients instead.
The third issue is that the things that we feel matter in fund management; costs and performance are left until last. One discretionary fund manager went as far as to say that clients don’t mind his (in our view excessive) costs because they valued the service. It is the end of Capitalism when price stops being a factor at all. There are sometimes multiple layers of fees and it is painful trying to dig around until you have identified them all. Hopefully the FCA will press on with their plans to force a standardised all in fee. Now we know that cost is not the only factor, clearly performance is also important but this data is hard to access as well with firms hiding behind the ‘apples and pears’ or ‘every client has different performance’ arguments.
I am sure that the argument would run that they act according to what the advisers generally expect and demand but there is only so many times you can tell a fund manager that you see things differently and be ignored.
In short, fund managers need to start looking at their performance, their costs and we as consumers (advisers and clients) need to stop having our heads turned by flashy sponsorship, tickets to sporting events and in-house dining rooms.