Expert: Heather Hopkins, formerly Platforum
Facilitator: Tony Langham
This is the headline finding from the FCA’s recent Asset Management Market Review. The FCA is recommending that both industry and investor representatives agree a standardised template for costs and charges. So are you working on it?
- Value is always at inflection point. Looking at the industry as a whole, the current environment is that margins are resilient but profits are down. There are significant changes in distribution, profits from traditional fund houses fell 2.9% whilst assets grew 3%.
- Rise of passive - according to the IA passive fund sales between 2012 -2016 doubled. The market is still way behind US but is growing. However according to Platforum research both advisers and investors prefer actively managed funds. A very small proportion of D2C assets are in tracker funds. It is from professional advisers that we are seeing more of a push to passive assets.
- When it comes to value for money there is a wider value chain that needs to be taken into consideration
- Importance of scale - not convinced it’s the answer - doesn’t deliver efficiencies. Scale more effectively responds to pressure from distribution and technology.
- Providing outcome orientated solutions for investors is of increasing importance but outcome is always hard to measure.
- The fund management industry needs to improve its overall reputation.
- The key thing is the focus on total cost for the end investor. What is fair value? Need to find a better way to measure fees.
- There is a real need for managers to impress the importance of long-term investing and better articulate contrarian investing.
- FCA – overall it really comes down to ‘What is it you are actually selling?’ And ‘Why should investors pay for something different?’ There is a narrative built around outperformance, but little is being said on the value of risk management and downside protection.
Challenges and opportunities:
- Growth of passive - is there a possible crisis coming?
- “Platforms will eat the asset managers’ lunch”. Asset management industry needs to get back to being closer to the customer.
- Brand is of increasing importance. Creating a consumer brand is hard. Asset managers who can create a solution to make an adviser’s life easier could see more business but ultimately all still have to deliver something that works for the end investor.
- What is the point of differentiation - fees, collaborative approach, and tech? What is the story you have to differentiate yourself to convince people to pay a premium?
- Asset managers need to look at the way they communicate or don’t communicate with the end consumer. Younger investors are much more tuned in to social media. Even advisers are no longer interested in detailed analysis and white papers; they want short pieces of information to pass on to the end investor.
- Providing value to the customer is about genuinely turning them into long term investors.
- RDR caused a significant number of orphaned clients and this is an issue because it doesn’t help breed long term investors.
- Fund management as a skill. This is something that the industry needs to articulate.
- FCA criticism is that asset management is too focused on costs not on value for money. But value for money is a really hard thing to measure. How can we move towards doing that?
- Who should the audience be? Research houses, intermediaries or end investor – surely it doesn’t matter as communicating and managing money well will contribute to better outcomes for investors however you get there.
- Legacy issues - back book vs front book challenge. Could this lead to dramatic changes?