PlatformsJul 7 2014

Should we be worried about the industry’s puppet masters?

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The asset management industry is experiencing seismic shifts, according to Deloitte.

But, amid all the tremors it reports, one point in particular grabbed me – the assertion of fund management bosses that only about 150 people control funds in the UK.

You wouldn’t need the ballroom of the Grosvenor House Hotel to accommodate them, just a church hall.

There are a huge number of platforms; more IFAs and advisers have centralised propositions; and the vice-like grip of insurers has, if anything, loosened.

But are these people some sort of Bilderberg group for funds under management? Hardly. The report acknowledges the importance of platforms, DFMs, insurers, DC consultants and heads of research at IFAs. Given the diversity of these roles, the power brokers can’t all know each other.

It is also the case that we have been talking about gatekeepers of this nature for at least 15 years. One might even venture to say that, in the retail market, the numbers of significant gatekeepers has actually risen. There are a huge number of platforms; more IFAs and advisers have centralised propositions; and the vice-like grip of insurers has, if anything, loosened.

There are not – at least not in such high numbers – mini-gatekeepers making individual decisions. Increasingly, they are turning to expert advice and outsourced research and fund management.

Now, this Deloitte report talks to a lot of asset managers, managing directors and distribution directors – and is mostly aimed at them. They want to win business and defend margins, or profits, by winning and retaining a greater amount of assets. This is a view of the world as they see it.

A more pertinent question for investment advisers is this: what motivates this group of 150? Is the main driver of their decisions the need to offer decent investment services in terms of risk and performance, or is it to maximise profits at the expense of all else? Perhaps, given that all businesses have to make money, the relationship between the research and commercial functions, properly managed for conflicts of interest, could be to the detriment of advisers and investors.

Also, is it going to alter the fund management universe? The report implies that smaller players will struggle. Arguably, this depends on what you mean by fund management; add ‘discretionary’, and, in terms of numbers and options, things are in rude health.

Maybe it is more difficult to build up a firm from scratch. But it was never easy. There have always been risks associated with being an independent, medium-sized, mediocre player. It is just that they are heightened now. That is not a bad thing for advisers and investors.

In fact, it could be argued that, while the big fund firm bosses see a landscape with fewer gatekeepers, the choice is actually wider – and the standards higher – from an adviser (and client) point of view.

There is one final risk, however, with such a small group of people – that they all start behaving in the same way, particularly when it comes to received wisdom about risk management and investing.

In fact, although it would be great to know who’s on the list, maybe it’s better no one really does, in case they all start talking to each other in whatever language the all-powerful lizard people are using to communicate these days.

John Lappin blogs about industry issues at www.themoneydebate.co.uk