There is a problem for the investment industry, and it is called tinkering.
It is a highly unusual problem, because for decades it was practically impossible to get anyone to pay enough attention to their investments. They were left languishing on high charges and poor performance.
But now everyone is paying too much attention, stemming from innovation and technological advances. It has become so easy to check your investments through a fund supermarket that the temptation is to tinker with them all the time.
And you know what they say, time in the market is better than timing the market.
I do it myself. At least once a week I log on and see what my investments are doing, reading far too much into minor market movements. I do not trade much, but I can see how someone would.
Alongside the rise of tinkering, we have a liquidity problem, and I am not talking about Neil Woodford’s Equity Income fund, though that is a unique set of circumstances that neatly sums up the issue.
Long-term investing is a hard concept for savers, and it is where financial advisers can really add their worth.Liquidity within property funds and among other assets, such as private equity, is higher on the agenda as their lack of flexibility puts them off the radar.
Tinkering plus a lack of liquidity equals a headache. It creates a bit of a conundrum at a time when the government wants pension funds to start taking bets on alternative assets.
The Investment Association has been working on a solution to this for the past year, and it has come back to the table with a proposal for an altogether new type of fund: a long-term assets fund that will be ‘tinker-proof’.
The fund would aim to get over the problem of liquidity by essentially gating investments during certain periods of the year. So if you want your money out you have to wait for a window – that may be at the end of the month, or even once a quarter – to get it back.
In exchange, the fund would be able to control withdrawals and so focus on more illiquid assets – unquoted stocks, private equity and property, the kind of stuff that has real problems if withdrawals are high.
It is a good idea, but a hard sell to retail investors, for whom the idea that you should put your cash into something where it is locked away could be problematic.
Long-term investing is a hard concept for savers, and it is where financial advisers can really add their worth. Proper financial planning is tinker-proof, and is focused on long-term goals rather than short-term market movements.
And of course, the success or failure of any long-term asset fund will hang on two things: cost and performance. That’s something the IA cannot plan for.
Contingent charging is back on the FCA’s radar
What is better: a few people not being able to afford pension transfer advice, or lots of people getting bad outcomes from pension transfers?
That is the quandary that now confronts us as the FCA again limbers up to tackle the rather uncomfortable figures that have come out of its review of defined benefit pensions.
Over a three-year period, only 72,904 out of 234,951 scheme members who had received advice on a transfer stayed put. I say only, because the regulator’s own principle is that advisers should start from the basis that savers should not transfer.
Of course, the statistics are skewed. The survey was taken at a time of high transfer values, and in a market where fears were running high about the health of DB schemes.
In addition, those needing advice are more likely to be insistent on making a transfer than those who do not come forward – which may sound obvious enough. But the fact of the matter is that the FCA has promised further work on this area, and that means contingent charging – that great, hard to justify, commission – is on its radar again.
Do not say I did not warn you all about the direction of travel for contingent charging.
Who is policing the perimeter?
A press release arrives in which I learn that the watchdog has a perimeter. Almost 20 years as a financial journalist and the regulator dumps an entirely new phrase on you.
Anyway, it turns out to be quite important, because it is all about what it does and does not regulate. But that is not really the problem – although, of course, the FCA has managed to make a mockery of its attempts to regulate bits of the market.
No, the real problem is that rogue companies wilfully pretend they are regulated when they are not.
It is this area where the FCA seems completely unable to act. So in effect, there is no point having a perimeter, or whatever you want to call it, because no oneis policing it. Maybe Andrew Bailey needs to speak to Donald Trump about his wall.
James Coney is money editor of The Sunday Times
