InvestmentsMay 11 2015

Advisers caution fund firms on pay

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Advisers caution fund firms on pay

Fund managers have been warned that failing to publicly disclose their pay policies could see them at risk of losing advisers’ business.

Advisers said they could be “swayed” against buying funds from asset managers that do not follow the Investment Association’s (IA’s) suggestions to divulge remuneration practices, a request that was revealed by Investment Adviser last week.

The trade body has urged UK asset management companies to disclose the way in which their employees are paid.

In a private memo to its members, the IA said firms should publish a prominent “client-focused” document stating their pay policies and how their investment teams’ interests aligned with their clients.

Martin Bamford, chartered financial planner and managing director of Informed Choice, said whether or not fund managers chose to disclose their remuneration practices “shows a certain kind of culture” at the company.

He said the suggestion by the trade body was an “important urge towards transparency”.

Mr Bamford said this information could factor into his analysis of funds and “sway his thinking” on buying products.

In the memo, the IA also said it would consider “whether to disclose on our website a list of members who follow this recommendation”.

Anna Sofat, founder of London-based Addidi Wealth, said this was a good idea, but the IA should also consider producing a list of fund managers that would not publish the information.

She said: “The fund managers should be named and shamed for their clients to look at. The negative tends to work better than the positive and fund managers need to be accountable.”

Some fund managers have already decided to follow the trade body’s recommendations and plan to produce a document.

Artemis Fund Managers plan to issue a document by the end of July, while JO Hambro Capital Management also acknowledged the IA’s memo and said it was working at producing a document for its clients, although it did not have a specific time frame in mind.

Robin Keyte, director at Somerset-based Keyte Chartered Financial Planners, said the potential list of companies that comply could influence the businesses he chose for his investors, as it would be “interesting to know which don’t want their consumers to know [how] their fund managers get paid”.

He added: “It can only be positive. It’s the next step in the road to transparency; they can all see what’s coming with regulations.”

From next year the European Union will force fund managers to invest at least half of their bonuses into their funds and defer at least 40 per cent of their bonuses for three years.

The Institute of Directors (IoD) launched a report in March calling for regulators to investigate the funds industry, including an investigation into pay.

However, some think the IA is not dealing with the real problem.

Laith Khalaf, senior analyst for Bristol-based Hargreaves Lansdown, said fund manager pay was “simply another cost”.

He said: “Breaking down how the fund management group then spends that money is a distraction from the key things that will determine investor returns – the performance of the fund and the charges levied on it.

“I would prefer to see fund charges coming down rather than some waffle about remuneration policies, because I know that will feed directly into investors’ pockets,” he added.

SELECTED FUND MANAGERS REVEAL HOW THEY PLAN TO REACT TO IA’S MEMO

Artemis

A spokesman said: “We will be publishing a single, client-focused description of our remuneration policies. This will explain how their design and application are aligned with the interests of our clients. We envisage doing this by July 31 2015.”

JO Hambro Capital Management

The company already published “comprehensive details” of the pay of its senior executives and fund managers, a spokesperson said.

“We will work towards making such a document readily available to clients.”

JPMorgan Asset Management

A spokesperson for the group said it would be complying with the Investment Association’s recommendation.

Jasper Berens, head of UK funds at the group, is a member of the trade body’s board.

Old Mutual Global Investors

A spokesperson from OMGI said it was important to note that its fund managers’ remuneration was performance based.

Liontrust

A spokesperson said: “It is under review internally, but we comply with all current regulations.”

F&C Investments

A spokesperson said: “We will consider the proposals from the Investment Association carefully.”