Fund managers have to show they offer good value

While anyone in financial services, and probably their clients, is worrying about how we pay for this crisis, there is not much we will know until the autumn.

What you do in the meantime, to prove your business has value, is as critical as ever.

So, what are you doing to make sure that your clients are getting value for money?

I don’t mean on your own service — I’m sure that is tip-top as ever — but on the investments they hold.

One of the great transformations in investing that has happened this year has been the launch of value assessment reports.

I appreciate it has come at the worst possible time for asset managers, in that the market has crashed and nothing is looking particularly good value.

Financial advisers have a responsibility to make sure their clients are being best served

But nonetheless the reports have been eye-opening, with every week another big investment house having to admit that when they look through the different measures, many of their funds have been pretty poor and quite a lot of time it is fees that have been the main culprit of eroding value.

The most startling aspect of this has been the issue of share classes and precisely how many investors have been sitting in the wrong class, paying far higher fees than they need.

For example, last week M&G had to admit that 38 out of 44 funds achieved unsatisfactory performance and failed to achieve value. A further six were too new to assess.

M&G (which is by no means alone) was conducting a major review of fees. 

Corporate clients, such as pension funds, were being contacted to let them know what was being done with the prospect that many could be moved to a different share class.

Retail investors, of course, were going to have to wait even longer.

So if the fund managers are going to act slowly in making sure retail investors don’t lose out, then financial advisers have a responsibility here to make sure their clients are being best served.

If the Financial Conduct Authority is really going to ensure that the value assessments serve their purpose, then surely the onus is on them now to enforce changes to share classes on companies?

That means advisers have a responsibility here too, not least to read the value assessment reports.

Of course, there is the awkward, and persistent, issue of trail commissions.

By some measures as much as a quarter of retail investments, around £180bn worth, may still be sitting in pre-Retail Distribution Review share classes where commission is being charged despite no advice being given.

If the whole industry is moving to one where asset managers have to put customers in the share classes that provide the most value, then, by that logic, so must advisers.

Value is suddenly key, and if you can’t show that you’re working in the best interests of the customer, then really, what are you doing?

Wealth tax

And so another left-leaning think-tank proposes a wealth tax. I just cannot believe how one will ever happen. 

First there is the cumbersome issue of how you tax wealth.

Do you tax savings? Investments? Pensions? Property wealth?

What about other assets such as cars or paintings or wine?

And how then do you account for people who have been in the same property for decades and through no fault of their own have seen its price rise, while their own personal assets have shrunk?

It’s impossible. Second, the idea of a wealth tax was in Labour’s 1974 manifesto.

It never happened, with Denis Healey later reflecting that the party had found it difficult to implement to yield enough revenue without too much administrative and political cost.

No, a wealth tax always sounds appealing, but it is largely impossible.

Budget statement

While we’re all dining out on Rishi Sunak this August, perhaps we should all consider how we’re actually going to pay for these free meals further down the line.

Before the chancellor stood up for his Summer Statement, Boris Johnson batted away a question about taxing pensions.

It wasn’t totally equivocal (is it ever?), but it was a confident rebuttal.

He said the Tories were not about tax, tax, tax, but about build, build, build.

Does this mean the talk of reining in tax relief on contributions is dead? Don’t bet on it.

James Coney is money editor of The Times and The Sunday Times