Ever since Ian Sayers took over as director general of the Association of Investment Companies (AIC), dealing with regulatory issues has become part and parcel of his role. So it is a good job that, as far as he is concerned, his skills lie in understanding legislation and translating it into language the average investor can understand.
Just like the rest of the financial services industry, the investment trust sector, as represented by the AIC, has been swamped by regulation recently.
“We actually asked our membership in our conference this year, what do you think is the biggest challenge for you?” says Mr Sayers. “And 52 per cent said dealing with regulation on a day-to-day basis.
“That would certainly be true for us. The amount of regulation has never been greater and a lot of it has flowed from the financial crisis. Although we didn’t cause the crisis, we are caught up in that regulation.”
Having started out as the AIC’s technical director in 1998, Mr Sayers became deputy director general in 2005. He has been in his current role since 2010.
He says: “As deputy I got more involved in some of the broader work and so I wasn’t purely focused on the technical and regulatory work. But then when Daniel [Godfrey, the previous director general] decided to move on, I threw my name into the hat.
“I was probably quite fortunate at the time, having come from a background of regulatory work. The membership were saying the most important thing they wanted from a trade body was someone to help deal with regulation. That probably helped my cause.”
He notes that the first draft of the Alternative Investment Fund Managers Directive (AIFMD), “which was the biggest piece of regulation to hit our sector”, was published just three months before he was interviewed for the role.
During the first couple of years at the AIC’s helm, the regulatory agenda became something of a priority. As he puts it, his aim was to get through the regulation unscathed.
“The AIFMD was just being designed, almost in real time, so I spent a lot of time out in Brussels talking to all the heads of Europe. There wasn’t very much time for anything else.
“I have ambivalent views about it because I think we did a very good job and I think the membership was quite appreciative. But in a sense it was fighting fire, it was reactive, [because] we don’t think we should be caught by the regulation at all.”
The advent of the Retail Distribution Review (RDR), for which the AIC had been lobbying for more than a decade, has been a much more positive development for the industry.
Mr Sayers explains: “We don’t pay commission as products and that’s always meant we haven’t had our fair share of adviser recommendations, so we were very pleased that eventually the Financial Services Authority, as it was at the time, did undertake some research into what problems this caused. I think once they’d done this research, it was inevitable that the RDR would happen.”
The RDR may have levelled the playing field but, when it comes to markedly improving the adviser community’s take-up of investment trusts, he admits that much still needs to be done in terms of education.
The AIC reported in July that in the first quarter of 2014, adviser and wealth manager investment trust platform purchases hit £106.8m, a rise of 23 per cent year on year. The AIC has been running a training and education programme for the past couple of years and the latest figures confirm his belief that the number of investment trusts being recommended by financial advisers is increasing.
So far, the organisation has trained roughly 2,500 advisers. Mr Sayers adds that the rising popularity of investment trusts among advisers has been marked by steady growth, rather than a sudden spike in demand.
“They’ve started off by watching something on our website, then they come to our face-to-face seminars, they then start to look into the portfolio planning aspects of it, then eventually they might take the leap and buy investment companies,” he says. “But it does take time. It’s a very long process because you don’t change people’s habits over a couple of years or so. It might take a decade to really make an impact.”
It seems that the industry is forging strong links with the adviser community. Mr Sayers attributes this to advisers’ willingness to offer feedback at AIC events, to which the organisation has duly responded.
As he explains: “One of the things advisers said to us was, they know where gearing is today and where it was in the past but where might it go tomorrow? We thought about that and we understand that. What happens if the board announces tomorrow they have just taken out 50 per cent gearing?
“So we have a gearing range, and this is what the board would expect gearing to fall within in the foreseeable future. That gearing range is entirely because of advisers saying they wanted some kind of indication of where things are going in the future.”
In Mr Sayers’ view, the pensions sector provides a valuable opportunity to trumpet the virtues of investment trusts. He was as surprised as anyone when the chancellor announced the changes to pensions in this year’s Budget but points out that the issue of income in retirement will once again be at the forefront of investors’ minds.
“The income story has been very positive for us for a long time but I think there was a feeling, with interest rates about to rise, that some of the gloss might come off that story. Now I think the annuity changes will actually give it another lease of life,” he says.
“We just have to make sure we get the positioning right, because what we’re not saying – and we’re very clear on this – is that our members’ products are a substitute for annuities. They are absolutely not an annuity. Annuities still have their place, but it’s a different way of looking at income in retirement.”
Mr Sayers foresees a time when there will be a “new breed” of financial adviser – those who enter the industry with an attitude of “complete neutrality” about the types of products they recommend.
“Sometimes it’s been portrayed that we’re trying to position investment companies like mass-market products, even though we’ve never said that and it’s actually irrelevant for our industry,” he says. “Advisers control hundreds of billions of pounds in assets. If we could capture 5 per cent of that over the long term, that would be massive for our industry. At the moment we’re at 0.5 per cent to 1 per cent, so there’s a long way to go.”
The investment trust sector has been in existence for approximately 150 years. Does he think the industry will survive another 150?
“The demise of the investment company universe has been predicted every 10 years for the past 50 years. It never happens and the reason it doesn’t happen is because it evolves,” he argues.
“Going back 20 or 30 years, I think a lot of people would have said: ‘There’s lots of competition with open-ended funds, where’s this industry going to go?’ So it will keep doing whatever the market wants. That’s why I think it will survive, because it has that flexibility built in.”
Mr Sayers hails the current state of the sector, with its record assets, low discounts, continued strong performance and the implementation of the RDR. “If there’s any time to feel happy and confident about the future, now’s probably it,” he says. “I keep telling my staff: ‘If you’re waiting for the good times, it’s now.’”
CV
2010-present – Director general, AIC
2005-2010 – Deputy director general, AIC
1998-2005 – Technical director, Association of Investment Companies (AIC)
1991-1998 – Tax manager, investment management group, Ernst & Young
