Dan Jones  

The rush to 'direct investing' looks oddly familiar

Dan Jones

Dan Jones

At times of industry overhaul, investment trade bodies keen to stave off accusations of irrelevance often seem to rely on one defence above all others: a change of name.

Last week brought the news that two more sets of branded stationery are about to be chucked away, courtesy of the Wealth Management Association (WMA) and the Association of Professional Financial Advisers (Apfa) combining to create the Investment Management and Financial Advice Association (IMFA). As the dividing lines between sectors start to merge, so too do trade bodies themselves.

You may recall that Apfa and the WMA were previously known as Aifa and the Association of Private Client Investment Managers and Stockbrokers, respectively. The latter was renamed in 2013, partially in recognition of the fact that stockbroking had a limited role to play in an age of fund-based portfolios.

That was a fair assessment to make given the rise of discretionary fund managers (DFMs), multi-asset portfolios and the like. But at a time when trade bodies are looking forward, some allocators are heading back down a familiar path.

Consider the growing number to have turned to direct investing over the past year: Rathbones, Old Mutual, Thesis and now Henderson, as Investment Adviser reported last week.

The difference, of course, is that direct investing is now forming a part of unitised offerings, as well as traditional client portfolios. These multi-manager and multi-asset products are partially turning away from equity funds in favour of buying shares directly. The result – portfolios that are a mix of funds and shares – looks pretty similar to those created by private client investment managers.

Why are fund firms doing this? An obvious answer is that it makes their products more competitive by lowering costs. Another might be that it distinguishes them from competitors. This rationale arguably applies even if more and more managers take this route. I suspect the universe of shares used by these portfolios will prove far broader than the small number of UK equity funds that tend to find favour with selectors.

Assume that DFMs will soon start to face the kind of cost scrutiny now being applied to fund houses, and you can make the case that stock selection will start to come back into favour among wealth managers, too.

The trend by no means heralds the end of the fund structure, but it is more evidence of how lines are being blurred. The stockbrokers of old may no longer have a trade association to their name, but the merits of their investment approach are coming back into favour.

Dan Jones is editor of Investment Adviser