The retail fund management industry is “out of control” and needs to radically reorganise, by borrowing ideas from the institutional sector, according to Nucleus chief executive David Ferguson.
Speaking at his firm’s annual strategy event, he said that where the institutional market is tight and responsive, the retail market is slack and sluggish.
“Institutional clients wouldn’t tolerate the pricing, the accountability or the performance of the retail sector, so why should your customers?” he asked over 240 advisers.
Mr Ferguson commented that retail groups find themselves in “an odd place”, where cashflow modelling tools are calling the shots and volatility is being over-used as a calibration measure.
“When enormous global institutions are shoehorning funds into risk buckets defined by unregulated software companies – and paying a licensing fee for the privilege – the market truly has gone bonkers.”
This problem breaks down into two parts, according to the wrap platform’s boss, firstly, the risk assessment and asset allocation side, and secondly, the selection of managers to deliver in accordance with the first.
“While a mathematical model can do much of the heavy lifting, there remains a very human task of assessing and refining the outputs; cookie-cutter advice is not going to drive good outcomes and is certainly not what the regulator wants to see.”
Earlier this week, FTAdviser’s sister title Financial Adviser reported that the director general of the Institute of Directors urged the Financial Conduct authority to investigate fund managers, following concerns about the “alarming” lack of transparency surrounding their pay and practices.
Mr Ferguson suggested that mandates should be defined and managers should pitch to deliver the most competitive and well-managed solution against them. “That is how managers become accountable and more likely to act in the customer’s interest.”
Elsewhere in his address, he revealed that Nucleus is aiming to attract 30 to 40 new firms this year as part of plans to grow from £8.5bn to £20bn worth of assets on the wrap over the next few years.