On the positive side things are changing and I was encouraged recently to watch a CNBC debate from Davos with some leading fund managers, such as M&G and Aberdeen, accepting that reform was overdue.
Some of this desire for reform is no doubt fuelled by the FCA’s recent thematic paper on the asset management sector which found “price competition is weak in a number of areas of the industry...while the price of passive funds has fallen, active prices have remained stable. Despite a large number of firms operating in the market, the asset management industry has seen sustained, high profits over a number of years.”
The FCA also found, “investors are not always clear what the objectives of funds are, and fund performance is not always reported against an appropriate benchmark.”
The fund management sector is still mulling the FCA’s paper but any reform should consider both adviser and provider charges along with platform costs. Ultimately clients pay all these costs and they are all hurdles to investing. I have no hesitation in saying that good advice is probably the most important and valuable element but it must be fairly charged and related to the other elements in the cost chain.
With modern technology, investing should not be an overly expensive business and clients deserve better. I believe lower costs will also open up investment funds to a much bigger audience long term and provide better value for existing clients and that’s no bad thing.
Advisers will need to review their models to ensure that clients are always getting a good deal on investing and that the fees and costs they charge are clear, understood by the client at all times and are fair. Fees should preferably be charged separately and not taken from funds to avoid depressing performance.
Performance can never be guaranteed but one good way to maximise performance is to keep costs and fees down. It seems that at last that message is being understood.
Kevin O’Donnell is a financial writer and journalist