The meaning of life: What is our purpose? What are our clients paying us for?

John Hall

AdvisorsAsset ManagementAsset ManagementBroadridgeMIFIDIIRegulation

Considering MIFID II and the requirements for transparent client reporting, revenue dynamics in asset management have changed. The importance of demonstrating value for money throughout the chain has become ever more important, not just through to wealth managers and intermediaries, but also the end customer.

Headlines

  • Asset managers are failing to effectively communicate their products’ purpose and value for money in a language needed for the end investor
  • Whilst asset managers question whether this burden responsibility lies with them as the manufacturer or with the distributor, the issue is ultimately linked with value for money and so will need to be addressed as part of the regulatory process.

 

Key themes

Through annual interviews with 1000 fund selectors, Broadridge’s Key Drivers of Success research distinguishes three building blocks to demonstrating client value: Proposition, partnership and presentation. The most influential factor remains the asset manager’s proposition, which covers their prices vs value of money, alpha vs outcome and capital accumulation vs the manager’s goals for risk management, income, inflation protection and values integration. Yet presentation and partnership are becoming increasingly important factors to fund selectors. Fund sectors want to see asset managers effectively and transparently communicating their value to clients, whilst also demonstrating why it is in their best interests to work with the asset managers’ them than working on their own. Overall, this comes down to service, with 22% of fund selectors now saying that service is a key selection criterion when choosing an asset manager.

 

Opening this discussion to the floor, conversation focused on the role of asset managers in educating the end client. Broadridge’s research shows that this is an area intermediaries and advisors are struggling with, with many noting that unless investors have the necessary level of financial knowledge, then whenever markets are hit by an adverse event, they will not have the patience to stay invested.

 

Delegates largely agreed that asset managers are failing here, especially when it comes to their ability to describe products in simple terms and effectively communicate what the product does and how it provides value for money. They agreed that use of expert jargon is a massive problem here (and one which the industry is being very slow to address), with customers being provided with endless jargon about their investments as opposed to a coherent narrative covering the risk and return profile of the products they are buying. Nevertheless, the room was not unanimous on this. Whilst many agreed that, as a manufacturer, the burden of responsibility still lies with the asset manager to provide effective product descriptions for use across the chain, some questioned whether communication with the end client was best kept with the intermediary distributors. For these, the disconnect between the end client and the asset manager, which is always two steps removed, is a serious challenge.

 

Looking more broadly at the value for money asset managers provide above the investment proposition, delegates also noted greater difficulties with larger institutions such as Quilters who are ever improving their internal capabilities and vertical integration. Combatting this will require increased innovation and looking outside the box for solutions to better add value, such as the insights of BlackRock’s Aladdin or other analysis outputs.

 

Conclusions

  • The asset management industry needs to combat industry jargon in all our communication – even for our advisors – and think about innovative ways of spreading this educational message across the chain.
  • Overall, there is a burden of responsibility across the industry to improve this, no matter how far along the chain you are from the end client.
  • Regulation will only put further pressure on asset managers to address this, particularly in terms of value for money.

 


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