What are we to make of the leaked report that fund managers will avoid a charge cap in the Financial Conduct Authority’s (FCA) review of the industry?
The Sunday Times tells us that the FCA has been steered away from this course because it does not believe fee caps alone can prevent investors paying over the odds.
A number of questions arise out of this, not least whether the FCA is being influenced too much by politicians and the industry it is supposed to regulate.
Let us not forget the farce of the banking inquiry just a few months ago. Apparently, in the FCA’s view, our bankers were so upright there was no longer any need of a review.
These will be the same responsible bankers who think it is a bit of a laugh to photograph themselves with a blow-up doll on the site of the twin towers on September 11. Nothing wrong with a banking culture that can produce such sensitive and thoughtful people as that, is there?
But let’s not get distracted by a few rotten eggs.
Let’s instead examine the fund management industry’s reaction to the possibility of there being no fee cap.
Are they jubilant at the extra flexibility this will allow them to provide the very best returns for their investors?
Well, according to the Sunday Times, one industry expert summed it up thus: “Fund managers have been terrified of a fee cap since the FCA was created. These are people with big mortgages, cars and extravagant lifestyles. A cap means lower salaries and bonuses. This keeps them up at night.”
Ah. Well, it is good to know that something disturbs their consciences, because >there has been precious little sign that underperforming the stock market has ever caused a sleepless night or put a job under threat.
For the record, I am not in favour of an overall charge cap, though I think there is an argument for a brand of fund with capped charges.
The solution to high charging is transparency and clarity. If investors understand what they are being charged, then they have the power to make decisions.
Sadly, they still often have little clue.
Clear pricing leads to healthy competition. So price caps are not necessary so long as the fund management industry behaves in a competitive and open manner – something that has not always been the case.
Axa back-pedals on payout
If you have ever wondered why journalists and the public can often despair at the insurance industry, then try this out for size.
A man goes on a bike ride while on holiday near Lake Geneva to meet friends for lunch. He has an accident, banging his head three times.
His travel insurer, Axa, agrees to pay medical bills and initially says it will cover the damaged gear.
Then it changes its mind because his policy “excludes sports clothing while in use”. It also argues that he was wearing “professional sports gear”.
This included a base layer, cycling shorts, shirt and helmet.
Now, I do not know about you, but I see people cycling in such gear every Sunday morning and often while commuting.
The equipment was expensive, coming to around £1,000. The helmet, for example, was £169 – but the latter is safety equipment, and surely how much someone spends on cycling gear is a matter of personal choice. Incidentally, the reader was not expecting to recover full costs.
Axa told me the exclusion is on Page 45 of his policy.
It ultimately offered £250 for “service issues” which the reader accepted – though I would have liked to see the case go to the Financial Ombudsman Service.
Whatever the rights and wrong, the case illustrates why people become so frustrated about travel insurance.
Threadneedle cottons on to post-Brexit irrationality
Threadneedle’s lifting of the suspension on its £1.3bn property fund is another sign of normality returning to markets post-Brexit.
Don Jordison, managing director of property at Threadneedle, hit the nail on the head with his observation that commentary just after the vote now looked “irrational”, and that more informed reflection had since settled the market.
Of course, in the intervening period damage was done, with some investors panicked by the “irrational” commentary and the fund making £167m of disposals.
Although there were no forced sales, according to Threadneedle, there were still 25 disposals with prices less than 1 per cent down on pre-June 23 valuation. Of course, there will have been costs involved with those sales.
So calm for now is being restored – until, that is, someone stokes the fire again. Never forget, more trading is always good for someone’s business.
Tony Hazell writes for the Daily Mail's Money Mail section. t.hazell@gmail.com
