Show us the value of ratings
Reading a review of a new West End play, the critics were less than enthused while the performers’ parents and friends were quite the opposite. Very much in the vein of the soldier’s mum who exclaimed: “Oh, look, they are all out of step except our James!” This is a reminder that we need an external view if we are to see us and our firms the way the industry and our clients view us.
Keeping not just your own perspective in mind but also those of the providers and clients is necessary if we are to move to a fully fledged profession. To engage the public, we need to demonstrate our commitment and highlight the value we bring to the table.
The news that YouGov currently estimates 46 per cent of high-net-worth individuals make all of their own investment decisions got me think-ing, just why are so many not seeking advice? Or just as important, what makes them think they can do better than the professionals? If they seek to rely on fund ratings they could be in real trouble.
The percentage of HNW clients that make their own investment decisions is up from 33 per cent in 2009. With the advice community seeking to move ever demographically upwards, this is not good news.
On to ratings, as France awaits what seems to be an inevitable downgrade, let’s consider where ratings came from. Standard & Poor’s has its roots in the media. Its incursion into ratings was to make the copy more readable and it basically grew from there. The flaw in the rating concept is how they are remunerated. I have a problem if they are funded by the very companies they seek to rate.
This tends to leave us without ratings for the smaller, and in some cases more effective, managers. This is not helpful. Neither was the A-D concept floated by the Investment Management Association. Descriptors cannot be acronyms or similar and to even attempt this reveals a sense of desperation or, worse still, ignorance, by the promoter.
It is clear we need some risk rating for investments an investment barometer if you like that is independent and not selling “improvements on ratings” following a quest to improve one’s standing against the fund or trust’s peers.
Currently, we have to research the smaller investment firm with no resource of any note, in a rating sense. The distribution of information needs to improve both from an accessibility perspective and in a level playing field-style approach. There needs to be no correlation between fees paid and ratings gained.
The recent comments on Mifid derailing the RDR imply that the FSA was caught on the hop but how can you be when you have been lobbying for an exemption for several years. In any event, do you want to cling onto commission as long as possible and then be forced to change overnight? Is that even slightly sensible?
Alice Cooper once asked David Bowie where he should play a concert in the UK as he could only fit in one venue and not a tour due to commitments. Bowie told him Glasgow Apollo was the place because if you performed well there you got praise but just turning up did not count. Rating agencies need to take note and show us the value.
Robert Reid is managing director of Syndaxi Chartered Financial Planners