In its recent annual report on the UK investment industry, trade body the IMA went to great lengths to prove that – contrary to growing beliefs – the industry is not hyper-concentrated.
The sales departments of some fund companies have lately become obsessed with the notion that a dwindling number of client-money ‘gatekeepers’ are pushing investors into a dwindling number of funds.
The logic is that as the number of people who influence fund-buying decisions falls, so too does the diversity of the range of products that get bought.
There is probably a degree of truth to this, because since the RDR financial advisers have been outsourcing more clients, because the less wealthy customers are no longer as lucrative under fee-based advice.
There certainly are investment selection ‘panels’ at national advice firms, discretionary managers, and centralised investment propositions like multi-manager funds, but these have been around for a long time.
The logic is that as the number of people who influence fund-buying decisions falls, so too does the diversity of the range of products that get boughtHave they somehow monopolised fund-selection decisions overnight? I don’t think so, and neither do our readers who continue to give high-quality fund-buying advice to clients.
So the IMA’s recent work proving that fund industry concentration is actually quite low, and indeed falling – not rising – didn’t come as a surprise.
“The UK fund management industry remains a highly competitive environment, with the top 10 firms representing approximately 46 per cent of the total UK authorised funds under management in 2013, a similar level to the early 1990s,” the report stated.
“At the end of 2013, the average fund size was £339m but one half of all funds managed less than £90m.”
This simply doesn’t chime with the notion that a handful of people are pumping clients’ money into a handful of funds.
It’s for this reason that I sympathise with the New City Initiative, a collective of small asset managers that is worried about forthcoming Mifid II rules, which will ban funds from paying stockbrokers for equity research through commission – i.e. using client money.
This puts the small groups at a major disadvantage to large houses, which can obtain or produce research on shares more efficiently owing to being bigger.
I’ve previously taken a different view on this, insisting that if fund managers want to buy in their ideas they should pay for them themselves.
But the New City Initiative is proposing that fund managers instead be ordered to include research commissions in funds’ ongoing charge figures, so investors can clearly see what they are paying for.
If we want to preserve the competitive nature of our industry, this idea might be worth further debate at the top levels.
John Kenchington is editor of Investment Adviser
