Last week, Morningstar ran our annual investment conference, on subjects ranging from Brexit and risk management to the cost of funds and the future of advice. Read on for our coverage of the Morningstar Investment Conference UK in our special report What the Experts Say.
“We have been investing other people’s money this for decades, why are we still talking about fee transparency?”
Gina Miller, founding partner of SCM Private, has a point. Joining former Investment Association chief executive Daniel Godfrey and Hermes chief executive Sakar Nusseibeh, on a panel debate at the Morningstar Investment Conference this week, Miller lamented that while investors in the US have been able to see the total cost of every transaction since 2004, in the UK we are still in the dark.
She continued: “We should be mandating total transparency. The FCA should make it happen. This is not a difficult thing; how can advisers do their job properly without this information? I don’t see a problem with a high fee product – I have a problem with investors not knowing about it.”
Fund Managers Not Passing on Savings
Nusseibeh said that while assets under management had risen in fund management, costs have not fallen. Instead, asset managers have launched increasingly complicated products which, in the eyes of the industry, justify a higher fee.
“Investment skill is worth paying for – but skill is very rare,” he said. “There is not enough skill to go around – instead we should go back to keeping things simple. Honesty is very important – when does a fund manager ever say ‘take your money back’? We did it, but it is hard to do.”
Godfrey said that the lack of fee transparency was contributing to the negative image many consumers have of the investment industry.
While Godfrey was chief executive he proposed a transparency pledge that all asset managers should sign, vowing to put their clients first. It was not a success. In fact, the so-called statement of principles led to Godfrey leaving the IA. It was understood some fund management groups felt he was acting against them in his commitment to reform.
Godfrey said on the panel this week that rather than make trust an objective, fund managers should: “stop talking about trust and get on with improving”.
“Transparency is key. They should be committed to doing the right thing, and trust will be a happy consequence,” he said.
Nusseibeh said he could not believe other fund management groups had not signed the statement of principles, adding: “all it said was that you were committed to putting clients first.”
Platforms – the Right One for You
Morningstar’s director of manager research services Jackie Beard, panel moderator, explained that it was not simply about getting fund managers to disclose cost – there were the layer of fees associated with platforms and advice too that needed to be made clear to investors.
“A lot of advisers have all their clients on the same platform because it is easier that way,” said Miller. “This should not be the case. It has got to be about the right platform for the individual – trust and transparency. That does not necessarily mean the cheapest provider either, as service is important too – it is about value as well as cost.”
What is the Answer?
“There’s a need for both accuracy and precision, but the needs differ according to the stage of the process,” said Beard. “So to make an informed choice about which investment to buy, which advice channel to follow, which platform and which product, we need accuracy of information. But at the point of transactional execution, we need a precise single figure showing what the cost impact will be to me as an investor, based on my personal goals.
“How we get to that is a huge challenge and there is still much to do by way of education and trust. That’s what we as an industry must strive for, and address that lack of enthusiasm among investors. Their financial futures could very well depend on it.”
